Economic Forecast & Analysis

9/2/2010

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

The European economy is recovering from the severe recession of 2009, albeit gradually and slower than anticipated, according to the semiannual Manufacturers Alliance/MAPI European Industrial Outlook: 2010-2011 (ER-705), a report that analyzes 14 major industries.

The report separately analyzes two distinct regions: Western Europe and Central Europe. The former generally comprises the 16 countries that form the currency union (Eurozone), while the latter includes the three largest economies of Central and Eastern Europe (CEE3): the Czech Republic, Hungary, and Poland. All forecasts are based on a proprietary MAPI model.

Kris Bledowski, Ph.D., Manufacturers Alliance/MAPI Economist and report author, notes that forecasts for gross domestic product (GDP) oscillate around 1 percent growth for the Eurozone for 2010, and for approximately 2 percent growth in 2011. GDP growth in the non-euro economies should reach upward of 2.5 percent, 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,” he writes. “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 percent. Six of 14 industries are anticipated to grow in 2011, with machinery and equipment leading the way at 5.9 percent. Three industries—wood and products, nonmetallics and construction—are 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 percent in 2010 but followed by a 2.1 percent decline in 2011. Electrical equipment is predicted to be the lead sector in 2011 with 11.2 percent growth.

Bledowski reports that six industries are in the accelerating decline (either early recession or mid-recession) phase of the business cycle in the Eurozone, while eight industries are in the decelerating decline phase (late recession or very mild recession). None is in the accelerating growth (recovery) or in the decelerating growth (expansion) phase of the cycle.

In Central Europe, eight industries are in accelerating growth; one industry, petroleum and coke, is in accelerating decline; five industries are in decelerating decline; and none is in the decelerating growth phase.

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

To purchase the report click on the link highlighted above.

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8/19/2010

MAPI Quarterly Economic Forecast: Recovery Weakens Amid Softer Economic Data

The U.S. economy has decelerated to a “slow growth mode,” primarily driven by consumers continuing to deleverage and rediscovering the need for thrift, according to a new report.

The Manufacturers Alliance/MAPI Quarterly Economic Forecast predicts that inflation-adjusted gross domestic product (GDP) will expand by 2.9 percent in 2010, followed by 2.6 percent growth in 2011. The forecast is down slightly from the previously estimated 3.3 percent and 2.9 percent, respectively, in the May 2010 quarterly report. By supplying major assumptions for the economy and running simulations through the IHS Global Insight Macroeconomic Model, the Alliance generates unique macroeconomic and industry forecasts.

“There is a somewhat bleaker outlook amid weaker economic data and it clearly indicates a slow growth mode,” said Daniel J. Meckstroth, Manufacturers Alliance/MAPI Chief Economist. “For instance, the numbers for June retail trade, inventories, and foreign trade have all come in weaker than the Bureau of Economic Analysis had estimated in the preliminary estimate of second quarter GDP growth. The homeowners’ tax credit has expired. Consumers are not spending as much. They are saving more and repaying debt, which is good for the long run but not the near term. The inventory swing is over and the benefits of the stimulus have basically run their course.”

There remain, however, positive economic signs, and the manufacturing sector should continue to hold its own.
“Expenditures are rapidly growing for business equipment, as are exports,” Meckstroth added. “Manufacturing will grow faster than the general economy as it relies less on consumer spending while disproportionately benefitting from strong demand for business equipment, exports, and basic materials.”

Manufacturing production growth is expected to show 5.7 percent growth in 2010 and an additional 4.7 percent growth in 2011.

Production in non-high-tech industries is expected to increase by 5.1 percent in 2010 and by 4.3 percent in 2011. High-tech manufacturing production is anticipated to improve at a much higher rate, with impressive 14.5 percent growth in 2010 followed by solid 13 percent growth in 2011.

The forecast for inflation-adjusted investment in equipment and software is for 14.2 percent growth in 2010 and for 11.6 percent growth in 2011. Capital equipment spending in high-tech sectors will also continue to improve. Inflation-adjusted expenditures for information processing equipment are anticipated to increase by 12.7 percent in 2010 and by 7 percent in 2011.

MAPI expects industrial equipment expenditures to advance by 7.3 percent in 2010 before surging by 18.8 percent in 2011. The outlook for spending on transportation equipment is for a robust 54.6 percent increase in 2010 and 25.5 percent growth in 2011. These figures should compensate for the 51.5 percent decline in 2009.

Spending on non-residential structures is the lone GDP expenditure category expected to decline in each of the next two years, falling by 14.3 percent in 2010 and decreasing by 3.2 percent in 2011.

Exports and imports will both see gains. Inflation-adjusted exports are anticipated to improve by 12.5 percent in 2010 and by 8.1 percent in 2011. Imports are expected to grow by 11.8 percent in 2010 and by 6.7 percent in 2011. MAPI forecasts overall unemployment to remain high, averaging 9.6 percent in 2010 and 9.4 percent in 2011. Manufacturing is expected to see a hiring increase, albeit less than previously anticipated. The sector is forecast to add 277,000 jobs in 2010 and 373,000 jobs in 2011, although the numbers are down from 400,000 and 500,000, respectively, in MAPI’s May report.

The price per barrel of imported crude oil is expected to average $74.50 in 2010 before heading to $78.00 per barrel in 2011, well above the $59.40 per barrel in 2009.

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8/16/2010

MAPI Latin America Outlook: Brazilian Factories Are Leading Strong V-Shaped Rebound

Latin America’s economies are showing a sharp V-shaped recovery from last year’s recession and, while growth is seen across the board, the drivers for the rebound differ, according to the Manufacturers Alliance/MAPI Latin America Manufacturing Outlook (ER-704e), a biannual analysis that examines the latest trends and provides a near-term forecast for 16 major industries.

The report, authored by Fernando Sedano, Ph.D., MAPI Economic Consultant, focuses on Latin America’s three largest economies—Brazil, Argentina, and Mexico—as these countries are responsible for more than 80 percent of the manufacturing output in the region. MAPI forecasts that overall manufacturing output in Latin America will grow 8.3 percent in 2010, a significant increase from the 5 percent advance forecast in the December 2009 report. The report anticipates that manufacturing production will decelerate to 3.7 percent growth in 2011.

In developing its forecast, MAPI utilizes data from national statistical agencies, assigning weighted average annual production indexes for each industry. The weights are determined by a country’s sector value added in U.S. dollar terms, using MAPI’s proprietary econometric model.

Brazil’s manufacturing production is expected to surge a sizable 11.5 percent in 2010, underpinned for the most part by vigorous internal demand, and to a lesser extent by robust exports. In Mexico, manufacturing production will increase a more moderate 5 percent in 2010. Sedano writes that a U.S.-driven manufacturing upturn in Mexico is leading to immediate job creation with positive potential implications for consumer spending, raising the odds for a stronger rebound than previously anticipated. Argentina’s manufacturers are expected to increase their output levels by 6.8 percent in 2010 as its economy benefits from higher commodity prices as well as strong economic activity in China and Brazil.

The report anticipates that during 2010 manufacturing production in Latin America will surpass pre-crisis levels.

“The performance of the automotive sector, which accounts for a large share of Latin America’s manufacturing, remains key to the outlook,” Sedano said. “Production is ramping up across countries and stimulating growth in a broad number of sectors. Food and beverages production continues holding up well and is in line with expectations. Machinery and equipment production—a major drag during last year’s downturn—is soaring as companies are investing to expand capacity to keep up with rising demand. As a result, industries such as basic metals and fabricated metal products, which supply the machinery and equipment and automotive sectors, are also expanding.”

The report sees growth in 15 of 16 industries in 2010 and growth in all 16 industries in 2011. Three industries—food and beverages; motor vehicles; and machinery and equipment—account for roughly 40 percent to 45 percent of the region’s manufacturing and, therefore, are most important to the forecast.

Food and beverages production, the largest industry in the region and one of the most stable, should grow by 4.3 percent in 2010 and rise by 3.6 percent in 2011. The automotive sector is forecast to improve by 22.5 percent in 2010 and further grow by 5.7 percent in 2011. The machinery and equipment industry should increase production by 26.7 percent in 2010 and by 5 percent in 2011.

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8/12/2010

MAPI Introduces New Forecast Model for Manufacturing Outlook in India

The Manufacturers Alliance/MAPI has developed a new model to forecast annual output growth in 16 major Indian manufacturing sectors.

In The Manufacturing Outlook in India—Introducing a New MAPI Model (ER-703e), economist Cliff Waldman includes five input drivers taken from Consensus Forecasts (a product of Consensus Economics, London, United Kingdom), entered as assumptions to simulate the new MAPI model: growth in gross domestic product (GDP), investment, exports, imports, and industrial production.

After 10.7 percent Indian manufacturing growth in fiscal year 2009, MAPI anticipates a deceleration to 8.1 percent growth in FY 2010 (April 2010 to March 2011) before accelerating to 8.4 percent growth during FY 2011.

Fourteen of 16 sectors should show growth in 2010 and 2011, including three which are expected to show double-digit gains in both years: transportation equipment and parts by 17 percent and 15 percent, respectively; machinery and equipment by 12 percent and 10 percent; and beverages and tobacco by 11 percent in 2010 and by 12 percent in 2011. One other industry, paper and paper products, is expected to post a double-digit gain in 2011, by 10 percent.

“The machinery and transportation equipment sectors are expected to be the strong performers, partially catalyzed by India’s current intensive effort to engage in much-needed infrastructure development,” Waldman writes, “and after being flat in 2009, beverages and tobacco output is expected to resume the double-digit growth rate seen since 2004 as multinational beverage manufacturers continue to mine the Indian market.”

The report notes that over the short term, the Indian economy and its manufacturing sector confront a number of challenges. While the country has diversified its export markets away from the advanced economies and toward developing Asia, almost one-third of Indian exports are still sold in the United States and the Eurozone, two regions with shaky and uncertain economic recoveries. In addition, India is confronting a difficult inflation problem, possibly forcing the central bank to accelerate monetary policy tightening. This creates a downside risk for economic and manufacturing growth.

“Over the longer term, India shows much promise as a manufacturing and trade power,” Waldman said. “Its gross domestic savings as a share of GDP is approaching 40 percent, creating a strong domestic capital base to support investment-led growth which, in tandem with accelerating foreign direct investment, should support long-term industrial strength.

“As India augments its competitiveness in global goods markets, rebalances its sources of growth away from consumer spending, and makes a strong push in infrastructure improvement,” he added, “its growing manufacturing strength will likely be supported, at least over the next five to 10 years, by capital goods output.”

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7/1/2010

MAPI Report: China Manufacturing Outlook

The Manufacturers Alliance bi-annual report on the Chinese economy includes 18-24 month forecasts covering 16 industries. China Manufacturing Outlook: A V-Shaped Recovery is Under Way; Solid Growth in 2010 and 2011 Forecast (ER-700) reviews China’s economic growth in 2009 and provides a detailed analysis on the performance of a selected group of the country’s most important industries.

The report finds that stimulus-related infrastructure investment will decline but China’s manufacturing production will continue to grow swiftly in 2010, primarily due to the anticipated gradual recovery of global trade and the quick pickup in real estate investment.

The report also explains the gross output forecast for China’s manufacturing sector in general, and more specifically for 16 subsectors in 2010 and 2011.

The publication is available at no charge for MAPI members while other purchasers may order the report for $50 by clicking on the link above or by contacting Jasmine Hopwood at 703.647.5132 or via email to jhopwood@mapi.net.

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6/22/2010

MAPI Report: 2011 Federal Budget Tax Proposals Risk Harm to Competitiveness of American Businesses

Tax increases in President Obama’s 2011 budget proposals will have unintended adverse consequences on American businesses, and on manufacturers in particular, while the Wyden-Gregg proposal has more positive effects, according to a new report by the Manufacturers Alliance/MAPI, a public policy and economic research organization in Arlington, VA.

In A Closer Look at the Business Tax Burden: C-Corps, S-Corps, and the Impact of the Federal Budget’s 2011 Tax Proposals (ER-701), Economic Consultant and report author Jeremy Leonard shows that under the Administration’s plan, while the corporate rate remains unchanged, measures to broaden the base would increase the aggregate business tax bill by more than $350 billion over the next 10 years, amounting to a 6 percent tax increase relative to the pre-budget baseline. Conversely, the report shows that the competing proposal of Senator Ron Wyden (D-OR) and Senator Judd Gregg (R-NH) has a more favorable impact on economic growth.

“We found that the Administration’s proposal results in an increase in the federal deficit of $100 billion relative to the baseline,” Leonard said, “while the Wyden-Gregg bill adds to GDP growth and employment, and reduces the deficit by $300 billion relative to the baseline.”

The paper also examines the effects of the 2011 federal budget’s tax provisions on pass-through businesses, which include almost four million S corporations and more than three million partnerships, which together account for 80 percent of U.S. businesses and one-third of total U.S. business activity. According to the report, pass-through businesses in the manufacturing sector will see their tax bills increase by an average of 14 percent.

The paper received the support of both U.S. Senators.

“I appreciate the Manufacturers Alliance’s findings, as they support what Senator Gregg and I have been saying," said Senator Wyden. "Comprehensive tax reform can not only make the federal tax code simpler and fairer for all Americans, it can help American businesses grow by making them more competitive in the global marketplace. There are few win-win opportunities but this is one that shouldn’t be missed.”

Sentor Gregg also cited the report.

“This new report by the Manufacturer’s Alliance highlights the counterproductive nature of the President’s business tax proposals," he said. "Those proposals threaten to destroy jobs, undermine the economy, and do little if anything to address our serious and unsustainable debt and deficit problems. However, the report also highlights the positive effects that the Wyden-Gregg tax reform would have on combating our nation’s debt and deficit epidemic by boosting economic growth, creating jobs and reducing the debt by $1.2 trillion over the next decade. In this time of economic recovery, I am hopeful that our colleagues will carefully consider the findings of this report and sign onto our common sense plan for bipartisan tax reform.”

Thomas J. Duesterberg, Manufacturers Alliance/MAPI President and Chief Executive Officer, argues that policy makers should reform the tax code to assist—not punish—the manufacturing sector which is a key to U.S. innovation, productivity, and well paying jobs.

“It is important to understand that tax increases intended to help contain deficits will exact a high price in terms of the competitive posture of U.S. manufacturing and the growth of the economy as a whole,” he cautioned.

The report finds that a more effective option to reduce the deficit can be found in the Bipartisan Tax Fairness and Simplification Act of 2010 (S. 3018) co-sponsored by Senators Wyden and Gregg, which would simplify the personal income tax system and reduce the corporate rate from 35 percent to 24 percent. It also holds personal income tax rates near current levels instead of raising them, which will aid S corporations. Simulations in the report indicate that it would create nearly two million jobs on a net basis and add an extra $500 billion to the GDP by 2015.

“The resulting dramatic increase in business profits would reduce the deficit relative to both the 2011 budget and the pre-budget baseline,” Leonard said. “Smart tax policy can advance the twin goals of sustaining the competitive edge of American businesses and help keep the government’s fiscal house in some state of order.”

Ronald D. Bullock, Chairman of Bison Gear and Engineering Corporation in St. Charles, IL, and report sponsor, concurred.

“S corporations and partnerships have become a central pillar of U.S. economic strength,” he said, “and it would be ill-advised to inadvertently shoulder them with a disproportionate share of the tax burden.”

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6/10/2010

MAPI Quarterly U.S. Industrial Outlook: Solid Gains Will Continue

The U.S. domestic manufacturing sector is showing signs of health and continued recovery, according to the Manufacturers Alliance/MAPI U.S. Industrial Outlook: Inventory Driven Rebound Accelerates Recovery (ER-699), a quarterly report that analyzes 27 major industries.

By supplying major assumptions for the economy and running simulations through the IHS Global Insight Macroeconomic Model, the Alliance generates unique macroeconomic and industry forecasts.

“A recovery is clearly well under way, and the industrial rebound is stronger than that in the general economy,” said Daniel J. Meckstroth, Ph.D., Chief Economist for the Manufacturers Alliance/MAPI and author of the analysis. “Consumer spending has returned to moderate growth, and the exceptionally severe winter prompted strong gains in non-automotive durable goods like clothing and utilities. An equally strong contributor is the swing in inventories. Since the beginning of the year, manufacturing has added about 100,000 jobs. Production grows faster than sales when firms move to less liquidation and then to rebuild inventories.”

Manufacturing industrial production, measured on a quarter-to-quarter basis, grew at a 7 percent annual rate in the three months ending April 2010, after expanding at a 6 percent annual rate in the three months ending January 2010. MAPI predicts the trend will continue, increasing 6 percent overall in 2010 and 6 percent in 2011.

Production in non-high-tech manufacturing expanded at a 6 percent annual rate during the February-to-April 2010 period. According to MAPI’s most recent economic forecast, non-high-tech manufacturing production is expected to increase approximately 5 percent both in 2010 and in 2011. High-tech industrial production rose at a 28 percent annual rate in the February-to-April 2010 time frame. MAPI anticipates that it will post strong 18 percent growth in 2010 and 15 percent growth in 2011.

There was a significant upward trend in the February-to-April 2010 figures for the various components of the manufacturing economy. Nineteen of the 27 industries tracked in the report had inflation-adjusted new orders or production above the level of one year ago, seven more than reported in the previous three months ending in January 2010, and one industry remained flat. Iron and steel production grew by 101 percent in the three months ending in April 2010 compared to the previous three months, while oil and gas well drilling activity advanced by 100 percent in the same window.

The largest drop came in private nonresidential construction, which declined 22 percent, while engine, turbine, and power transmission equipment production experienced a 14 percent decline.

Meckstroth reports that 19 industries are in the accelerating growth (recovery) phase of the business cycle; no industry is in the decelerating growth (expansion) phase; one industry, private nonresidential construction, appears to be in the accelerating decline (either early recession or mid-recession) phase; and seven are in the decelerating decline (late recession or very mild recession) phase of the cycle.

The report also offers economic forecasts for 24 of the 27 industries. The manufacturing sector will show improvement in 2010, with MAPI forecasting 20 of 24 industries to show gains, led by iron and steel production with expected 54 percent growth and industrial machinery with 42 percent growth. The recovery should continue in 2011 with growth likely in 22 of 24 industries, including nine industries which are predicted to grow at double-digit rates, led by housing starts at 63 percent—albeit from current historically low levels—and engines, turbines and power transmission equipment at 28 percent.

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4/28/2010

MAPI Global Outlook: Modest Recovery on the Path to a New Economic Balance

Doubts about the reality and sustainability of the global economic and financial crisis are subsiding among governments, financial markets and business leaders. Concerns remain, however, about the short-term challenges of monetary policy adjustment and longer-term fiscal troubles, particularly in advanced economies, according to a new report.

In the Manufacturers Alliance/MAPI Global Report—April 2010 (ER-698e), economist Cliff Waldman writes that lingering concerns about recovery “must be placed in the context of a world economy that is clearly rebounding from a deep bottom.”

“There is the likelihood that a handful of emerging market nations, notably China, India, Brazil, and South Korea, will disproportionally lead world growth in the early years of the new expansion with a forward momentum that is likely to be strong enough to compensate for residual elements of darkness in the industrialized economies’ outlook,” Waldman said.

The report discusses the eventual path to a less volatile world economy.

“In the process of adjusting to a post-crisis environment, the leadership of both advanced and emerging market nations will be evaluating changes in the sources of growth,” he observed. “Rich nations will need to export more while emerging economies will need to encourage domestic sources of demand. This combination will aid in the development of a more stable and balanced business climate.”

MAPI anticipates that the growth rate of total U.S. exports of goods and services will be 9.2 percent during 2010 as compared to a nearly 10 percent contraction in 2009. This is expected to be followed by 7.6 percent growth in 2011. The report notes that in post-World War II U.S. economic history, export declines of the magnitude seen in 2009 were followed by stronger and more certain rebounds.

Most advanced economies are expected to experience marginal recoveries in gross domestic product (GDP) and in manufacturing output over the next two years. GDP in non-U.S. industrialized countries, which include Canada, the Eurozone (plus Denmark, the United Kingdom, and Sweden), and Japan, is expected to rise incrementally from an estimated 1.9 percent growth during the first quarter of 2010 to 2.6 percent growth in the second half of 2011.

Developing countries, as has been the case in recent decades, will likely grow at a faster pace. Aggregate developing country GDP is expected to increase by 3.7 percent during the first half of 2010 before gradually reaching a high of 4.6 percent growth during the second half of 2011.

MAPI expects U.S. dollar volatility to continue into the early years of the global economic recovery, particularly against the currencies of the industrialized economies. It projects a 5 percent appreciation on a compound annual basis during the second quarter of 2010, followed by a 1 percent appreciation during the third quarter. In the fourth quarter of 2010, MAPI expects the dollar to resume a modest path of depreciation with intervening periods of appreciation as global financial tensions periodically arise.

Against the currencies of the developing countries, MAPI envisions the dollar will fall by 5 percent during the second and third quarters of 2010. Following that, and mostly as the result of an adjustment of the dollar against East Asian currencies, it forecasts the dollar to further depreciate by 10 percent during the fourth quarter of 2010 and the first quarter of 2011. It should then moderate to a 3 percent decline during the second and third quarters of 2011 before appreciating by 5 percent during the fourth quarter.

“While the continued rebalancing of global trade accounts will be a negative for the dollar, financial and fiscal jitters will likely produce periodic upside surprises in the path of the greenback,” Waldman predicted.

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2/23/2010

MAPI Report: ‘Great Recession’ Unfortunate Consequence of Financial Imprudence, Consumers Now Deleveraging

The United States embraced a credit-based growth model that required both increasing debt among existing borrowers and ever easing credit standards to attract more new borrowers, two primary factors that led to the “Great Recession” of 2008 and 2009, according to a new Manufacturers Alliance/MAPI report.

Repercussions of an Over-Leveraged, Highly-Indebted Consumer on Future Economic Growth (ER-695) warns that difficult choices will need to be made to bring long-term federal spending, especially outlays on entitlement spending, and revenue into alignment, or any economic benefits of increased household thrift risk being marginalized.

Government debt is now compensating for the deleveraging of the consumer sector, but is growing so quickly that it may overrun the ability to service the debt load.

“The primary risk going forward is that the debt bubble merely shifts from the private sector to the government sector,” said Daniel J. Meckstroth, MAPI Chief Economist and report author. “If the federal deficits run amok, a larger share of the economy will shift to less productive areas, the growth rate will suffer, and the limits of government indebtedness will likely be determined by foreign investors’ willingness to hold U.S. government debt.”

Meckstroth recounts that consumers went headlong into debt in the 2000s and leveraged their incomes into even higher debt levels. Household debt rose from 92 percent of disposable income in 2000 to 130 percent at the cyclical peak in 2007. Household debt, therefore, increased at a 10 percent annual rate over the seven year period, while disposable income gained only 5 percent annually.

“Home mortgages and home equity loans drove a very large proportion of households’ increased indebtedness,” he said. “Consumerism at its worst was driven by plentiful, cheap credit that was both secured and promoted by overinflated housing prices.”

The consumer saving rate is expected to increase in the current decade compared to the last, but the major impediment to higher overall savings and investment rates in the United States is the large, and growing, federal deficit.
From the cyclical economic peak in 2000 to the cyclical peak in 2007 (which includes the 2001 recession), gross domestic product (GDP) increased at a 2.4 percent annual rate. The annual average pace of economic growth from 2007 to 2019 is likely to be only 2 percent, and if there is another major economic crisis this decade, the economic growth rate will be even lower.

Meckstroth wonders if the next bubble may already be forming.

“‘Bubblenomics’ is not over,” he cautions. “Arising out of the worst recession in over half a century is a potential new bubble—government debt. Bailouts, stimulus spending, and tax cuts appear free. The perception is that federal deficits do not matter. It is easy, therefore, to believe the story that the government has unlimited resources and that government deficits will not personally be a great cost to taxpayers.”

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2/12/2010

MAPI European Industrial Outlook: Rebound in Manufacturing, Will Trail Overall Economy

Like its counterparts in Asia and the United States, the European manufacturing sector was hard hit by the global recession in 2009, but prospects are improving for a modest recovery in 2010 and in 2011, according to the semiannual Manufacturers Alliance/MAPI European Industrial Outlook: 2009-2010 (ER-693e), a report that analyzes 14 major industries.

Kris Bledowski, Ph.D., Manufacturers Alliance/MAPI Economist and report author, writes that preliminary data indicate that the European economy emerged from recession during the second half of 2009, but improvement in the industrial sector lagged. Coming out of contraction, Bledowski expects the industrial sectors of the Eurozone, Central Europe and the CEE3 all to grow roughly in the 2 percent to 2.5 percent range in 2010.

“We have seen accelerating improvement in inventory adjustment; a sharp pickup of trade, both intra-Europe and globally; and rising demand in the wake of fiscal expansion adopted by most European governments,” he said. “The improvement in the industrial sector, however, is far less pronounced. Manufacturing production did indeed start climbing last summer, albeit hesitatingly, but great variations remain.”

In the Eurozone, the report envisions a more positive outlook in 2010 with 13 of 14 industries showing growth, led by motor vehicles at 8 percent. Thirteen industries are also anticipated to grow in 2011, with computers and electronics the pacesetter at 14.5 percent. Textiles is the lone industry expected to decline in both years, by 7.8 percent in 2010 and by 3.4 percent in 2011.

In Central Europe, 12 of 14 industries are expected to show growth in 2010, and 13 of 14 should expand in 2011. As in the Eurozone, computers and electronics show strength, with 14.5 percent growth forecast in 2010, followed by even more robust gains of 18.3 percent in 2011.

Bledowski reports that six industries are in the accelerating decline (either early recession or mid-recession) phase in the Eurozone, while eight industries are in the decelerating decline (late recession or very mild recession). None is in the accelerating growth (recovery) or in the decelerating growth (expansion) phase of the cycle.

In Central Europe, two industries—construction and food, beverages and tobacco—are in accelerating growth; one industry, machinery and equipment, is in accelerating decline; 11 industries are in decelerating decline; and none is in the decelerating growth phase.

“The pace of manufacturing recovery in developed Europe will underperform its American counterpart in both 2010 and 2011,” Bledowski said. “European businesses will be hemmed in by cautious consumers and face lingering financing constraints.”

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