European Slowdown But No Recession

Manufacturers Alliance/MAPI says prospects brighter for Central Europe than for Western Europe

The European manufacturing sector appears to be heading for a soft landing but no recession, due largely to pockets of strength in Germany and Central Europe, according to the semiannual Manufacturers Alliance/MAPI European Industrial Outlook.

The report divides Europe into two distinct regions, Western Europe and Central Europe. The former generally comprises the 15 countries that form the currency union (Eurozone), while the latter includes the four largest economies of Central and Eastern Europe (CEE4): the Czech Republic, Hungary, Poland and Slovakia.

Manufacturing production in Western Europe is experiencing an emerging gap between "fast growers" in Austria, Finland, Germany, and Switzerland, and "slow growers" in France, Italy, and Spain according to Kris Bledowski, Ph.D., Manufacturers Alliance/MAPI Economist. The former group is benefiting from continued export demand in Central Europe and Asia, while the latter group faces challenges from domestic weakness and flagging international competitiveness.

The Eurozone manufacturing sector is forecast to grow between 1% and 1.5% in 2008, down from 2.5% in 2007.

While Central Europe continues to fare better that Western Europe, manufacturing growth in the CEE4 fell by one-half in 2007, mirroring a similar decline in the West. Consumer durable goods and selected capital goods remain strong, supported by rising incomes and exports. Yet there are clear signs of weakness, most notably in process industries and in some consumer non-durables such as food and drinks, and in high-tech product lines such as office equipment and IT gear. Manufacturing production growth in Central Europe will decelerate from the 12% range in 2007 to 5% in 2008.

In the Eurozone top year-over-year performers in 2007 were office machinery (24% growth) and electronic valves and other components (22.5%). In Central Europe, growth was seen in railway rolling stock (50.6%) and television and radio transmitters (47.4%).

Europes manufacturing as a whole is slowing but there are pockets of strength, such as Germany and Central Europe, which should assure at the very least a soft landing scenario for 2008, Bledowski said.

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