The financial world is still not certain how the credit crunch will play out eventually. Some of the analyses sound more like the whistling of a terrorised person passing through a thick forest at night. Banks are no more said to be passing off their loans to risk takers or securitising them. Those who are said to be still in the business of keeping their loans off their books are said to be taking their own time in investigating the borrowers and the risk takers.
With bankers looking closely in the mouth of the horse, the big borrowers, specially in the manufacturing sector the world over are said to have become wary of the developing situation and sentiments in this sector is said to be in a state of flux.
The sale of ABN Amro in this period of credit crunch is, however, being seen by financial experts as a ray of hope that things after all have not deteriorated to a point where the risk takers have been rendered totally inactive and the banks are pushed into a state of suspended animation.
Ian McCafferty, CBI Chief Economic Adviser, said: “Manufacturers are understandably worried about possible fall-out from the credit squeeze, but orders growth has remained healthy, and so far few firms are finding that access to finance is hampering prospects for output or investment.
”Nevertheless, there are some tentative signs that the pace of demand and output growth will edge lower in coming months. Domestic demand is starting to respond to higher interest rates and exporters are feeling the impact of the weaker dollar.
”One concern is the rapid cost inflation across a range of commodities, which is putting pressure on margins. Cost pressures are driven by higher prices for crude oil and rising food costs, although so far the majority of businesses have been unable to pass these onto customers.”
In the UK manufacturers have become more pessimistic about the business environment in the wake of the credit crunch, the latest quarterly Industrial Trends survey conducted by the Confederation of British Industries (CBI) revealed on Tuesday last. However, the results show that despite the drop in sentiment, orders grew strongly and there is little evidence so far of negative impacts of the recent global financial instability.
A balance of 13 per cent of firms is less optimistic about the business situation than they were three months ago. This is the sharpest decline in sentiment since January 2006 (-14%), although previous episodes of financial turbulence have had a greater impact on confidence.
Demand levels have remained healthy, with 27 per cent of firms reporting an increase in total orders in the three months to October 10, and 18 per cent noting a decrease, giving a balance of nine per cent. This is a slight improvement on July (a balance of +7 per cent), but a mild slowdown is expected over the next three months (+2 per cent).
Export order volumes have held up well, with a balance of eight per cent of firms reporting growth, although export demand is expected to stabilise over the next quarter. Sentiment about export prospects for the year ahead is weaker than in July. But concerns that political and economic conditions abroad will limit export orders are broadly unchanged from July.
Manufacturing output increased at its slowest rate since last October, with a balance of one per cent reporting growth, although a balance of 10 per cent predicts growth in the three months ahead.
Investment intentions for the year ahead in buildings and plant and machinery have edged down since July, but there are no indications that upheaval in the financial markets has made it more difficult for manufacturers to raise finance.
Manufacturers’ are less inclined to invest for expansion, as plant capacity has become less of a concern. Indeed more firms are working below capacity than in the last 21 months.
Manufacturing job losses remain below the long-term trend, with a balance of 11 per cent of firms reporting reduced staff numbers. A similar balance expects to cut employment over the coming three months. Based on the survey, the CBI estimates 7,000 jobs were lost in the sector in the third quarter of 2007, and that 10,000 will be lost over Q4, bringing the total employed in manufacturing at the end of 2007 to 2,938,000.
The proportion of firms fearing that short supply of skilled labour is likely to constrain output remains near its July level, which was the highest since 2001. In light of these ongoing skill shortages, firms are continuing to invest in their staff, with the balance raising investment in training and retraining in the next 12 months at its highest rate in almost 10 years.
Growth in average unit costs picked up further, especially for food producers, and the prices of oil, commodities and freight have all increased robustly since July. Expectations of cost rises (a balance of 22 per cent) are the strongest since April 1995 (+25 per cent).
A net 11 per cent of firms reported domestic price rises for manufactured goods, which was similar to the rate in the three months to July, and well above the average of the past decade. This rate is forecast to pick up slightly in the quarter ahead.
The October 2007 CBI Industrial Trends survey was conducted between September 20 and October 10, 2007. In all 529 manufacturing firms replied. During the survey period the pound averaged euro 1.44 and $2.03, while Brent Crude averaged $78.24 per barrel, compared with euro 1.48, $2.01 and $72.80 per barrel in the July survey period.
The financial world is still not certain how the credit crunch will play out eventually. Some of the analyses sound more like the whistling of a terrorised person passing through a thick forest at night. Banks are no more said to be passing off their loans to risk takers or securitising them. Those who are said to be still in the business of keeping their loans off their books are said to be taking their own time in investigating the borrowers and the risk takers.
Export order volumes have held up well, with a balance of eight per cent of firms reporting growth, although export demand is expected to stabilise over the next quarter. Sentiment about export prospects for the year ahead is weaker than in July. But concerns that political and economic conditions abroad will limit export orders are broadly unchanged from July.
