Manufacturing output remained broadly stable through the course of 2011, interrupting its initial strong recovery from the economic crisis. Recent data however give some reasons for more optimism with business confidence recovering to above its long-term average in recent months.
Nonetheless, resurgent raw materials and energy prices, fiscal consolidation and persistent difficulties in access to finance continue to adversely affect the dynamics of the recovery. Uncertainties about the resolution of the euro area debt crisis have negatively affected investment and firms have trimmed output to avoid inventory accumulation. Output in the construction sector is still at very low levels: a moderate recovery in civil engineering works (roads and bridges etc.) continues to be offset by continued weakness in house building.
In the last three months to January 2012, manufacturing production was some 1% higher than a year ago, but also some 0.9% below the level registered in the preceding three months. Output has fallen back in the majority of sectors over the last three months: the biggest contractions in production occurred in printing, basic metals and motor vehicles industries. Overall manufacturing output is now 14% higher than its trough in early 2009 and some 7% below its former peak in early 2008. Recent data and forecasts for services, including tourism, remain positive, but their future performance depends on the general economic situation.
International demand for EU products has increased rapidly and has supported EU manufacturing production (see the special article on the external competitiveness of EU manufacturing). Extra-EU exports have already recovered their previous peak. In contrast, intra-EU trade, internal demand and private consumption continue to be subdued and overall output growth in Europe has lagged that in the rest of the world, particularly emerging Asia and Latin America.
Data on manufacturing employment in the fourth quarter of 2011 shows that the number of persons employed remained broadly stable. The overall manufacturing jobs have shrunk by some 11% compared to their cyclical peak in 2008. The unemployment rate rose to a record high level, but the situation differs greatly between countries. Deteriorating employment expectations suggest little room for immediate improvement.