Manufacturing Forecast for Europe: Recession in Eurozone, Slowdown in Central Europe

Most sectors in Central Europe seen contracting less than Western Europe, according to Manufacturers Alliance/MAPI European Industrial Outlook

Arlington, VA — December 10, 2008 — The European manufacturing sector, like its counterpart in the United States, will face serious challenges through 2009, according to a semiannual report on the region from the Manufacturers Alliance/MAPI.

The report, "European Industrial Outlook: 2008-2009," covers 16 major industries and separately analyzes two distinct regions: Western Europe and Central Europe. The former generally comprises the 15 countries that form the currency union (Eurozone), while the latter includes the four largest economies of Central and Eastern Europe (CEE4): the Czech Republic, Hungary, Poland and Slovakia.

Kris Bledowski, Manufacturers Alliance/MAPI economist and report author, forecasts that the Eurozone will slide into a recession either in late 2008 or early 2009, but Central Europe as a whole may escape a recession despite the sudden collapse in demand in Western Europe.

"Regional differences in the Eurozone are as stark as ever, which bodes ill for the potential success of any joint stimulus measures," he said.

The report on Europe follows the recent release of the "Quarterly Industrial Outlook — Third Quarter 2008" report, analyzing the U.S. industrial sector and showing that the U.S. manufacturing recession continued unabated and in fact intensified in the third quarter.

In the Eurozone, 12 of the 16 industries will likely decline in 2008, with non-metallics falling the most, by 9.8 percent. In 2009, 13 industries are forecast to show negative growth, with office machinery and computers forecast to decline by 7.6 percent. In Central Europe, though, only seven of 16 industries will decline in 2008, and just one is forecast to decline in 2009. Textiles will decline the most in both years, forecast to fall by 9 percent in 2008 and by 11.9 percent in 2009.

Bledowski cites Germany and Switzerland as faring the best in Western Europe due to restructuring early and specializing in less price-elastic product lines. Denmark, Belgium and the Netherlands are still growing, but a slump is likely as early as mid-2009. Industrial production in the United Kingdom, Spain, Italy, France, Finland and Sweden is already declining, and these countries will succumb to a severe recession in selected sectors early in 2009.

The outlook for Central Europe is marginally brighter. It will follow the Eurozone's slowdown pattern but most sectors will contract much less than in the West. This is especially true for durable goods, primarily those in the consumer market. Unlike in Western Europe, no one Central European country stands out as being more resilient than the others, most likely because all share similarities in technological development, wage dynamics and macroeconomic management.

Bledowski reports that nine industries in the Eurozone are in the decelerating growth (expansion) phase and seven are in the accelerating decline (either early recession or mid-recession) phase; none is in the accelerating growth (recovery) phase or in the decelerating decline (late recession or very mild recession) phase of the cycle.

In Central Europe, 14 industries are in decelerating growth and two are in accelerating decline; as in the Eurozone, none is in the accelerating growth or in the decelerating decline phase.

"Europe's manufacturing outlook has deteriorated markedly over the past six months as consumer sentiment soured in the wake of the financial crisis and falling asset markets," Bledowski said. "The large, unified European economy is not immune to the vagaries of global trends."