Signs of Continued Industrial Growth in Europe, as Double Dip Fears Fade but Do Not Vanish

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Written by Richard Finlayson, Senior International Editor for Industrial Info Resources (Sugar Land, Texas)--The outlook for the European steel and manufacturing industries will be under constant review and revision until at least the middle of 2011. From the last quarter of 2010 into 2011, signs are good that exports will continue to increase. Progress will depend on whether the improving performance in some countries will successfully bridge the depletion of inventories following the global economic downturn, the withdrawal of government economic support measures, and a consolidation of domestic demand, leading to an upward trend in real production. The prospects for the harmonization of international exchange rates and an escape from protectionist policies will also be a key factor in prime industry global export prospects. Europeans will be thinking positively about projects and production, but will remain sensitive to uncertainties in the global economic and industrial environments.

The International Monetary Fund's (IMF) outlook for Europe labeled the coming period as one of "building confidence," as the region recovers from its deepest recession since World War II. Following a 4.6% contraction in GDP in 2009, a rise of 2.3% is projected for 2010, followed by 2.2% growth in 2011. Only Greece (-2.6%) and Portugal (0.0%) will fail to show any growth. Export growth is especially strong in countries exporting capital goods, and this trend saw German GDP grow at an annualized rate of 9% in the second quarter of 2010. Although activity in the U.S. and Asia could exceed expectations, global growth could very well turn out to be weaker than predicted, and the risk of a double-dip recession still lingers, reports the IMF.

Bulgaria, Estonia, Hungary, Latvia , Lithuania, Poland and Romania are classed as European Union emerging economies and are in the process of recovering, with a growth of 3.9% projected for 2010, followed by 3.8% in 2011. Among the developed economies, Germany is set to grow 3.3% in 2010 and 2% in 2011; France 1.6% in 2010 and 1.6% in 2011; the United Kingdom 1.7% in 2010 and 2.0% in 2011; Ukraine 3.7% in 2010 and 4.5% in 2011; Italy 1% in both 2010 and 2011; and Slovakia 4.1 % in 2010 and 4.3% in 2011.

Ukraine provides a good example of heavy industrial recovery, after the country's foundations in the steel industry were shattered in the first phase of the global financial fallout in 2008. The country's State Statistics Committee reported that total industrial production from January through September 2010 grew 10.8% year over year. Industrial output rose 10.9% from January through July 2010, and industrial production in September 2010 was 10.2% year over year. Industrial output rose 2.9% in September 2010 from August 2010. Russia and Ukraine continue to be the main source for E.U. imports of semi-finished steel products.

The 2011 All Products Composite Carbon Steel Price Forecast by steel industry analyst MEPS (International) Limited (Sheffield, England) sees confidence growing, as sales volumes and prices increase with improving economic conditions in the first half of the year.

On the upside, output could increase 3.5% in 2011, supported by investments in machinery and a possible pickup in the construction sector. This would follow a projected 3.7% growth in 2010. The construction sector will see current work winding down, and the non-residential construction sector will see reduced investment from both the private and public sectors. According to the European Confederation of Iron & Steel Industries (Eurofer) (Brussels, Belgium), the best outlook available for the sector in 2011 is that the E.U. will experience a "mild" recovery, with output growing 2.1%, after falling 3% in 2010. Despite an expected improvement in steel consumption, the level of real steel consumption in 2011 will be down 23% from 2007 levels.

Steel exports from the E.U. are projected to rise 8% in 2011, following a 6% rise in 2010.The downturn affected demand for construction-related steel products and rebar. Sections and wire mesh producers have become more active in North Africa and the Middle East. Although there could be a pickup in the construction sector in 2011, E.U. sales volumes of long products for construction purposes will not rise to previous levels.

Total imports are forecast to rise almost 30% in 2010, and a gradual rise of up to 14% is forecast for 2011. Temporary oversupplies in countries outside the E.U. could rise more strongly than expected, leading to market distortions.

Germany has led the positive output growth in E.U. countries, which is exemplified by the country's mechanical engineering sector. The German Engineering Federation (VDMA) reported that total orders were up 52% in July and August 2010, compared to the same period in 2009. Domestic orders grew 45%, and export orders were up 56%. However, this growth comes after a 66% decline in orders in 2009. After a projected rise of more than 7% in 2010, a growth of 6.3% is forecast in the E.U.'s mechanical engineering sector in 2011.

As government incentives for auto purchases wound down, German automobile sales showed a 30% drop in the first eight months of 2009. Counter to the automobile market, sales of commercial vehicles in the E.U. showed an upward trend for the first nine months of the year. New commercial vehicle sales were up 5% from the corresponding period in 2009. Strong export demand for European autos saw the overall automotive industry production rise nearly 27% in the first half of 2010, compared with 2009. The luxury cars segment showed particular strength. With increased inventories of passenger cars, 2011 could see marginal growth in output, following 15% growth in 2010. The domestic and export markets for commercial vehicles will be the real growth driver. An upswing in this market could indicate a foundation for continued industrial output recovery and an increase in the implementation of industrial projects.

Determination to implement plans and improve products has been a trademark of the German recovery, and has invigorated the supply chain, from small and medium engineering and manufacturing enterprises to the largest industrial corporations. Austerity and cost-efficiency are traditional characteristics of the medium-sized and privately held companies that have fed Germany's success. As other European governments talk of austerity measures and public funding cuts, they must maintain support for the quality products and design innovations that give European products the edge in global markets, especially the developing economies that are home to burgeoning middle-class populations and projected economic growth rates for 2011 of 8% and 9%.

Industrial Info Resources (IIR) is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. IIR's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.