Signs of a more generalised economic recovery are becoming evident across the sectors of EU industry.
Data on manufacturing production for February 2010 show growth of 3.5% over the previous year and growth of some 2% over the last three months. Manufacturing production has now increased in eight out of the last nine months. Output in February was some 5% above its cyclical trough in May 2009, but still 16% below its former peak in early 2008. In contrast to manufacturing, construction output has continued to fall in February, being now about 16% below its peak in early 2008. The latest data on turnover in business services and tourism in the fourth quarter of last year show it broadly stable.
There is increasing room for optimism about the short-term prospects for manufacturing. Industrial confidence has recovered strongly and production expectations are positive. There has been a significant recovery in world trade led by increased demand from emerging markets that has so far only partly fed through to EU exports. Moreover surveys suggest that inventories are now at very low levels; a further boost to output thus can be expected once manufacturers begin to rebuild their stocks.
Nevertheless a number of factors still suggest that some caution is still warranted about the prospects for economic recovery. These include a continuing decline of output in construction, the effects of low capacity utilization in weakening a rebound in investment, and the continuing deterioration in labour markets reflecting the typically delayed reaction of employment to lower output.
Looking further ahead, there is also still a risk that the continued limited availability of finance to firms on favourable terms could slow down the economic recovery. As shown in the recent ECB SME access to finance survey, SMEs in particular continue to suffer from difficult access to short-term financing.