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Monthly note on economic recovery in industry - January 2011

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DG Enterprise & Industry - Industrial Competitiveness Policy.

Latest data show that the dynamic economic recovery in industry and manufacturing continues, while construction industry is still in decline. Industrial confidence and the business outlook also continue to improve despite persisting global uncertainty and capacity utilization in industry has almost recovered to its long-term average.

In November industrial output continued its upward trend and was almost 8% higher than a year ago. However, it was still some 10% below its former peak in early 2008. The sectors initially most affected by the downturn, autos, machinery and equipment, and basic metals are recovering the most rapidly in the present upswing. On the other hand, output in consumer goods sectors shows little sign of a recovery or even further contraction. Construction output continues to fall, reaching in November its lowest level since the onset of the crisis. In contrast, data and forecasts for tourism are quite positive, even if the recovery varies across the regions. Output in business services is recovering only slowly, with the exception of strong growth in logistics.

Extra-EU exports are still growing very strongly and have now recovered their former peak. Growth in intra-EU trade, internal demand and private consumption in contrast is less dynamic.

Data on the third quarter of 2010 show employment in manufacturing beginning to stabilise. Since the cyclical peak, jobs have contracted by some 11.8% broadly the same size as the fall in output. Moreover, available evidence suggests that dynamic growth of industrial output allowed for short-term working being largely phased out in industry. The unemployment rate remains at a high level.

Looking at the situation in the specific Member States, substantial differences can be noticed. Particularly strong recoveries have been experienced in Germany, Sweden, Hungary, the Czech Republic and the Baltic states, where annual output growth has exceeded 10%. In contrast, countries that suffered from the bursting of real estate bubbles and that are in a difficult fiscal situation are coming out of the economic crisis somewhat slower than the countries having suffered from a temporary collapse of manufacturing production only. The recovery is now visible in all countries but Greece.

In general economic sentiment indicators remain positive and have recovered strongly over the last year. Industrial confidence is now at a historically high level, indicating that further output growth lies ahead. Also, the labour-market outlook is improving, and the strong growth in Asia continues, which continue stimulating the growth of export and output in Europe. On the other hand, fragile macroeconomic conditions maintain uncertainty in the economy. Also, fiscal austerity measures might affect the consumer climate and public and private demand.

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 latest 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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