European Commission - Enterprise and Industry

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The Economic Recovery in Industry Published on: 07/12/2010

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DG Enterprise and Industry.

Latest data show that the previously rapid economic recovery in industry and manufacturing has paused, while the decline in construction industry continues. Industrial confidence and the business outlook continue to improve despite persisting global uncertainty

Following some months of decelerating growth, manufacturing production in September 2010 actually fell back slightly. Nevertheless manufacturing production was 7% higher compared with the previous year. Output still remains almost 13% below its former cyclical peak in early 2008.

The sectors initially most affected by the downturn continue to recover the most rapidly in the present upswing, although at a slower rate of growth in recent months. In addition, a few sectors have experienced a contraction of output, notably transport equipment that is still responding to the earlier reductions in orders in the downturn. The outlook for construction is gloomy, as its output eventually continues to decline, reaching in September its lowest level since the onset of the crisis. On the other hand, data and forecasts for tourism are much more positive, even if the general economic uncertainty might delay the future recovery of the sector.

The dynamic expansion of exports has been moderating recently. Internal demand and private consumption are still rather weak as the unemployment rate stays at a high level. There are also some substantial differences in the situation among the Member States. Countries that suffered from the bursting of real estate bubbles are coming out of the economic crisis much slower than the countries having suffered from a temporary collapse of manufacturing production only. Moreover some of the Member States suffering from large deficit problems, i.e. Greece, Portugal and Spain, are those where contraction of output continues also in manufacturing industry.

Economic sentiment indicators remain positive. Also, the labour-market outlook is improving, and the strong growth in Asia continues, which should stimulate the growth of export and output in Europe as well. On the other hand, fragile macroeconomic conditions have inserted uncertainty into the economy. Also, fiscal austerity measures might affect the consumer climate and public and private demand. Exchange rate uncertainties may also play a role in holding back investment and exports.

Looking further ahead, there is 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 lending survey, increasing demand for loans has not yet been matched by more favourable lending conditions or higher availability of funding, although there are some signs that the overall financial situation is now starting to ease.

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