European Manufacturing Is Still Growing But Faces Decline

Manufacturers Alliance/MAPI says Central Europe's prospects look better than Western Europe.

Although the first quarter of 2007 reveals that the European manufacturing sector appears to have reached its cyclical peak in growth rates, it is unlikely to fall into a recession in 2008, according to the Manufacturers Alliance/MAPI European Industrial Outlook report.

Manufacturing production in Western Europe, which the Alliance defines as the 13 countries that form the Eurozone, is still rising but at a declining rate. German manufacturers enjoy the most robust growth dynamics and the most consistent order books, while the French and Italian producers are clearly suffering, says the Alliance. Spanish and British companies fare somewhere in-between.

The outlook for Central Europe, defined as the Czech Republic, Hungary, Poland, and Slovakia, looks more promising according to the report. Growth rates are sliding, but production is still rising at near double-digit rates, led by Slovakia on the strength of its booming auto and components sectors.

The four emerging economies are somewhat protected from the U.S. and Western Europe financial problems since the vast majority of domestic manufacturers fund themselves in local markets, explains the Alliance. Additionally, their financial institutions hold few external assets issued outside their borders and virtually none that bear risk to under-performing sectors such as U.S. subprime mortgages.

In Western Europe the top year-over-year performers through mid-2007 were office machinery (20.3% growth) and electronic components (20%).

In Central Europe, the growth markets were: television and radio transmitters (26.8%), fabricated metals (20.8%) and machinery and mechanical engineering (20.3%).

"The European expansion lags behind the U.S., and so the continent's manufacturers are still riding a strong tail end of the investment cycle there," said Kris Bledowski, Ph.D., Manufacturers Alliance/MAPI economist.

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