European Outlook: Manufacturing Held Back By Uncertainty, Prolonged Eurozone Crisis

Dec. 21, 2012
Recession continues in eurozone, while nominal growth forecast in Central Europe.

The Eurozone is back in recession and this second downturn is wide-ranging with little support of aggregate demand, according to the Manufacturers Alliance for Productivity and Innovation (MAPI) “European Industrial Outlook,” a report covering 14 major industries.

The report separately analyzes Western Europe and Central Europe. The former generally comprises the 17 countries of the currency union (eurozone), while the latter includes the three largest economies of Central and Eastern Europe (CEE3): the Czech Republic, Hungary, and Poland.

GDP in the eurozone will remain in negative territory: -0.7% in 2013 and -0.4% in 2014, Kris Bledowski, Ph.D., MAPI senior economist and report author, forecasts. GDP growth in Central Europe will avoid the recession, with Bledowski envisioning 1.1% growth in 2013 and 2.3% growth in 2014.

“In the eurozone, only exports provide net additions to national income despite slowing Asian economies and lackluster growth in North America,” Bledowski said. “Consequently, GDP in 2013 will not fully recover its 2012 losses, but domestic demand—pulled by investment spending—is slated to inch up about 1 percentage point by 2014.”

While manufacturing production is expected to rise by 0.7% in 2013 and by 1.0% in 2014 in the eurozone, prospects are brighter in Central Europe, where manufacturing production is anticipated to grow by 5.4% in 2013 and by 6.7% in 2014.

“Since our last report in May, the vast majority of industrial sectors in the eurozone have moved into an accelerating decline phase,” Bledowski said. “The Central European cycle, however, has barely changed since six months earlier; most durable investment goods are doing well and most process industries seem to be at a cyclical peak. Central Europe also serves as a key manufacturing hub and platform and plays a large role in the European supply chain.”

In the eurozone, the report predicts 8 of the 14 industries will show growth in 2013, led by motor vehicles at 1.4%. Wood and products will remain flat. In 2014, 11 of 14 industries are anticipated to grow, with computers and electronics expected to top the leaders at 2.6%. Petroleum and coke is anticipated to remain flat. Only one industry, textiles, is forecast to decline in both years.

In Central Europe, 10 of 14 industries are expected to show growth in 2013, and 11 should increase in 2014. Rubber and plastics is forecast to lead the 2013 growth sectors at 6.3%; for 2014, motor vehicles will advance by 8.6%. Three industries, however—textiles, food and beverages, and petroleum and coke—are likely to decline in both years.

Bledowski reports that no industries are in the accelerating growth (recovery) phase of the business cycle in the eurozone, while one, computers and electronics, is in the decelerating growth (expansion) phase. Ten industries are in the accelerating decline phase (either early recession or mid-recession) and three are in the decelerating decline phase (late recession or very mild recession).

In Central Europe, three industries are in accelerating growth, eight are in decelerating growth, two are in accelerating decline, and one—computers and electronics—is in decelerating decline.

“European companies continue to shy away from committing resources to capital formation, and the region’s leaders are struggling to manage declining confidence in European institutions,” Bledowski concluded. “On the bright side, the ECB promises to avoid a collapse of the euro through muscled monetary operations.” 

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