A load of crystal balls

The economic slowdown is a worry for all of us, but for the engineering sectors, it’s a particular concern. Reading the portents and trying to figure out what is likely to happen is difficult enough for economists, but at the high-tech end of the manufacturing sector, engineers are perhaps not the best equipped to make judgements.

This, perhaps, is why two such contrasting sets of predictions have landed in The Engineer’s in-box this week. In one, the Institute of Engineering and Technology’s annual skills survey finds that of its 400 respondents, 63 per cent are expecting to recruit staff this year, with a similar proportion citing expected business expansion as the reason for this. Chief executive Robin McGill sings the praises of the vibrancy and resilience of the engineering and technology sectors, and says that there is a strong demand for skills; he also echoes the Confederation of British Industry’s recent call for better science tuition and improving the profile of engineering in schools.

On the other hand, the KPMG Business Outlook Survey displays all the cheerfulness of of a black-clad teenager who’s been told he can’t go to see his favourite doom-monger band. Studded liberally with words like ‘bleak’, ‘poor outlook’ and ‘deterioration’, the report states that only 46 per cent of its respondents expect a rise in activity, with ‘a record 27 per cent’ expecting a slowdown. The difference of 19 compares poorly with the figure from this time last year, which was almost 60, it says.

KPMG respondents also expect their raw material and utilities costs to rise faster than last year, and the rate of growth of revenues expected to fall (note that this doesn’t mean that revenues are expected to fall; let’s not get too gloomy here, we’ve all got to get up in the morning). In stark contrast to the ebullient McGill, KPMG’s chief economist Andrew Smith warns ‘UK manufacturing is staring recession in the face’, saying that the perceived pessimism outweighs the expected effects of more expensive credit and price rises, and adding that profits, employment and output are all under pressure.

Confusing, isn’t it? They can’t both be right. The current downturn is a complex thing, with higher oil prices (although no two economists agree why they’re so high) combining with high food prices (possibly connected with demand for biofuels, though again no-one is sure) and the knock-on effects of American mortgage companies deciding it was a good idea to lend money to people who couldn’t pay them back. Is all of that going to affect manufacturing? If it does, are the high-end technology sectors likely to have a degree of immunity? And if we we’re supposed to quake in our boots over the KPMG survey, can we take some comfort from the credibility of last year’s optimistic numbers, which were obviously, hopelessly and horribly wrong?

It is difficult to quantify the effect of overly-cautious business decisions brought on by panic and fear in the marketplace. Prices are definitely rising in all sorts of areas, and it’s easy to see how a reluctance to pay for expensive air travel, for example, might have a knock-on effect on the civil aviation sector. But McGill is quite correct about the demand for engineers, which doesn’t appear to have abated. To bring in another talking head, the former editor of The Economist, Bill Emmott, said in the Guardian yesterday that the only thing that would bring the economy to a screeching halt is a sudden collapse in demand from China and India; which he says is extremely unlikely.

You can never be sure about these things. But we prefer to remain optimistic. The engineering sector has ridden out hard times before and there’s no reason why it shouldn’t do it again. With all the attention on Beijing at the moment, it seems appropriate to quote that hoary old Chinese proverb: we’re living in interesting times.

Stuart Nathan

Special Projects Editor