The serious interruption in the economic recovery of industry since the second half of 2011 continues to affect economic prospects. Trend-adjusted manufacturing output inthe first quarter of 2012 was a percentage point lower than in the second quarter of last year, whilst headline industrial production has fallen back somewhat further owing to developments in the mining and energy sectors. The ECFIN industrial confidence indicator remains at its longer-term average, whilst the PMI confidence indicator indicates further contraction in the euro area. Uncertainties about the economic outlook, high international raw materials and energy prices and on-going difficulties in access to finance continue to weigh down business confidence. Construction output has also fallen in recent months, with a strong contraction in civil engineering (roads, bridges etc.).
Overall in the first quarter of 2012, manufacturing production was some 0.8% lower than a year ago and also some 0.6% below the level registered in the preceding three months. The situation varies across sectors with most capital goods sectors maintaining their expansion, whilst consumer goods sectors have contracted. In the first quarter of 2012, the highest growth was registered in chemicals, computer and electronics, and machinery and equipment sectors, whilst the biggest declines in production occurred in leather, other non-metallic products, and beverages. Manufacturing output is now 11% higher than its trough in early 2009 and some 9% below its former peak in early 2008. Recent data and forecasts for services, including tourism, remain positive, but their future performance will be affected by general economic situation.
International demand for EU products has increased rapidly and has supported EU manufacturing production (see article in the March issue). Extra-EU exports have already recovered their previous peak. In contrast, intra-EU trade, internal demand and private consumption continue to be subdued. The recovery in output growth in Europe has greatly 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. Manufacturing jobs have shrunk by some 11% compared to their cyclical peak in 2008. The unemployment rate stays at a record high level, but the situation varies greatly between countries. Weak employment expectations suggest little room for immediate improvement.