European Industrial Outlook: Growth in Production but Pace of Expansion to Slow in 2011

Sept. 2, 2010
MAPI predicts 1% growth for the Eurozone for 2010, and 2% growth in 2011.

The European economy is recovering from the severe recession of 2009, albeit gradually and slower than anticipated, according to industry group Manufacturers Alliance/MAPI. Forecasts for gross domestic product (GDP) oscillate around 1% growth for the Eurozone for 2010, and for approximately 2% growth in 2011.

GDP growth in the non-euro economies should reach upward of 2.5%, led by Central Europe.

"Despite the headwinds of financial turmoil centered on refinancing sovereign bonds of southern European states, demand and production are on the mend," explains Kris Bledowski, Ph.D., Manufacturers Alliance/MAPI Economist.

"Robust growth in Asia and North America has underpinned European exports while selected stimulus programs reinforced domestic demand. Still, the financial sector is reluctant to lend and investors are weary of supplying fresh equity capital in the wake of the uncertain political economy of the European Union. European industry generally relies more on bank financing than do firms in the United States. Labor conditions continue to lag behind the recovery in production, spelling sagging productivity and a corresponding drag on competitiveness."

In the Eurozone, the report predicts 10 of 14 industries will show growth in 2010, led by motor vehicles at 19.5%. Six of 14 industries are anticipated to grow in 2011, with machinery and equipment leading the way at 5.9%. Three industrieswood and products, nonmetallics and constructionare expected to decline in both years, although all will likely rebound from significant declines in 2009.

In Central Europe, 12 of 14 industries are expected to show growth in 2010, and 10 of 14 should expand in 2011. Computers and electronics production will experience some volatility in the next two years, advancing by 31.8% in 2010 but followed by a 2.1% decline in 2011. Electrical equipment is predicted to be the lead sector in 2011 with 11.2% growth.

"While downside risks grew recently our forecasts are predicated on the absence of a double-dip recession in Europe, so the resultant industrial recovery emerges as weak yet durable," Bledowski said.

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