By Daniel Hunter

Whilst trading conditions will remain challenging in 2013, manufacturers have positioned themselves to secure growth in the year ahead by competing with new technologies and products and, by continuing to focus on higher growth markets according to a major survey of senior executives published today (Monday) by EEF, the manufacturers’ organisation.

Following a somewhat turbulent 2012, during which output declined for the first time since 2009, manufacturers are, on balance, less downbeat about the prospects for the UK and industry in the year head with manufacturing leaders indicating a ‘steady as she goes’ outlook.

However, manufacturers recognise the potential demand challenges that may lie ahead with eurozone markets expected to offer little in the way of growth opportunities for many and, the potential for a wider slowdown in the world economy continues to cast a shadow as we enter 2013.

“The past year has been a challenging one for UK manufacturers, but as they look to 2013 there is still the potential for growth in their businesses," EEF Chief Executive, Terry Scuoler, said.

"The increases in investment in innovation in recent years will bear fruit as companies see opportunities from new product development and, the commercialisation of new technology. These efforts will provide a platform for UK exporters to compete in faster growing markets and support efforts to diversify into new global supply chains.

“There is, however, no getting away from the clouds that linger on the horizon. While the risk of a break up in the eurozone has diminished, conditions remain difficult, leading to continued caution in business planning. At the same time, concerns around the wider global demand picture have grown amongst manufacturers.

“Overall there are reasons to be optimistic that manufacturers are well placed to benefit from a combination of growth in newer markets and, demand for higher value goods; which is exactly what our economy needs.”

According to the survey, 30% of respondents are expecting an improvement, compared with 23% anticipating a further deterioration in overall economic conditions in the UK. For conditions in manufacturing, the same proportion of respondents expect a deterioration as forecast an improvement in trading conditions in 2013. Both these balances are an improvement on 2012 when pessimists outnumbered optimists.

The improvement is expected to be driven again by exports, with half of companies expecting export sales to end the year higher than in 2012. Demand from emerging markets features strongly, with almost half of companies seeing this as important, especially for large firms where the figure climbs to almost two thirds.

Asia and South America both post strong positive balances, with North America and the Middle East also showing a significant tranche of companies expecting growth, as UK industry continues to increase its activity in the markets with the best growth potential.

Despite the confidence around company level plans, the survey also highlights the risks to growth. Last year, almost 80% of companies cited raw material prices or availability as the biggest risk to growth, with only 10% citing a slowdown in the world economy. This year the figures have almost reversed- with two thirds of manufacturers seeing the biggest risk to growth as a slowdown in the world economy.

In addition, 37% of companies have cited risks from exchange rate volatility, up significantly from last year. In addition, small companies continue to be concerned about their ability to access external finance.

EEF’s latest Credit Conditions Survey pointed to some easing in the availability and cost of credit in the latter half of 2012, but, progress is slow and from a low base and demand is expected to increase in order to support investment this year.

The survey also shows that the divergence in sector performance seen in recent years is expected to continue in 2013. Companies in the metals sector are the most negative about growth prospects, along with mechanical equipment. By contrast, the transport sector in particular is forecasting a moderate improvement.

Other transport, which includes aerospace, has posted continuous year-on-year growth for most of the past decade and this trend should continue through 2013. Companies in the rubber, plastics and chemicals sectors are also, on balance, predicting a pick-up in trading conditions in 2013.

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