EU: Industry Down 1%: Confidence Needed To Reignite Production

The economic outlook for EU industry has further deteriorated. According to the January 2012 report published Thursday by the European Commission, in the last three months to November 2011, manufacturing production was some 1% higher than a year ago, but also 1% below the level registered in the preceding three months.

Manufacturing output is still 13% higher than its trough in early 2009 and some 9% below its former peak in early 2008. Output has surpassed its earlier peak in pharmaceuticals, other transport equipment, beverages and food. However, most of the sectors are again declining with the biggest contractions in production occurring in textiles, furniture, leather, printing and computer industries.

Recent data and forecasts for services, including tourism, remain positive, but their performance will depend on the general economic situation.

After a very fast initial recovery from the economic crisis, manufacturing output has stabilised and even fallen back over recent months. Business confidence has declined, but still remains broadly at its long-term average.

Continued high energy prices, fiscal consolidation and persistent difficulties in access to finance continue to adversely affect the dynamics of the recovery. Uncertainties about the prospects for the European economy in the light of the euro area debt crisis have negatively affected investment, whilst firms have trimmed output to avoid inventory accumulation. Output in the construction sector remains close to its cyclical trough: a limited recovery in civil engineering works (roads and bridges etc.) has been offset by continued weakness in house building.

European Commission Vice-President Antonio Tajani, Commissioner for Industry and Entrepreneurship, said, “These figures are disappointing, indeed, but what worries me more is that they could look better. Our data confirm that Europe’s industrial competiveness has improved, but it is lack of trust which withholds industry to invest. In the past days we witnessed encouraging signs, such as in the US industry. If trust comes back to European industry and in particular to the millions of SMEs in this sector, we will have the capacity to get smoothly out of the crisis. Let’s seize this opportunity.”

Extra-EU exports have already recovered their previous peak and although they have stabilised in recent months they continue to support demand in industry. Growth in intra-EU trade, internal demand and private consumption continue to be subdued and lag behind, reflecting slower overall output growth in Europe as compared to the rest of the world, particularly emerging Asia.

Data on manufacturing employment in the third quarter of 2011 shows that number of persons employed remained broadly stable. The overall manufacturing jobs have shrunk by some 11% compared to their cyclical peak in 2008. The unemployment rate, on the other hand, remained stable in November at a record high level, but the situation is differs greatly between countries. Deteriorating employment expectations suggest little room for further improvement.

The data provided by the European Commission in the January 2012 report showing a 1% decrease in manufacturing production do not contradict the data provided by Eurostat indicating a 0.1% decrease in industrial production. The European Commission study is based on a three months change of manufacturing production, whereas the Eurostat looks at a monthly evolution in industry, which covers manufacturing as well as energy sector. The Commission’s approach helps limiting to some extent monthly volatilities in the analysis.