Despite uncertainty over public finances, the European economic recovery is well entrenched, but storm clouds loom during the next 18 months, according to the semiannual Manufacturers Alliance/MAPI European Industrial Outlook: 2011-2012, a report that analyzes 14 major industries.

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The report separately analyzes two distinct regions: Western Europe and Central Europe. The former generally comprises the 16 countries that form the currency union (Eurozone), while the latter includes the three largest economies of Central and Eastern Europe (CEE3): the Czech Republic, Hungary, and Poland. All forecasts are based on a proprietary MAPI model.

Kris Bledowski, Ph.D., Manufacturers Alliance/MAPI Economist and report author, notes that forecasts for gross domestic product (GDP) oscillate around 1.5 percent growth for the Eurozone for 2011 and approximately 1.8 percent growth in 2012. GDP growth in Central Europe should reach upward of 3.5 percent in 2011 and 3.8 percent in 2012.

\”Germany, Scandinavia, Slovakia, Poland, and Turkey are powering ahead,\” he says. \”In another group of countries – Portugal, Romania, and the United Kingdom stand out here – fiscal retrenchment is weighing on income and business investment, ultimately putting a damper on output. Overall, manufacturing production will jump some 9 percent in 2011 in Central Europe and about 4 percent in the Eurozone. A slightly more subdued 3 percent is forecast for 2012 in the Eurozone but a more robust 10 percent in Central Europe.\”

In the Eurozone, the report predicts 7 of 14 industries will show growth in 2011, led by motor vehicles at 14 percent. Ten of 14 industries are anticipated to grow in 2012, with motor vehicles leading the way at 7.7 percent. Four industries – wood and products, nonmetallics, textiles, and paper and products – are expected to decline in both years.

Central Europe should experience a more pronounced upturn; 11 of 14 industries are expected to show growth in 2011, and 12 of 14 should expand in 2012. Interestingly, computers and electronics production will experience some volatility in the next two years, declining by 2.4 percent in 2011 followed by a 15.8 percent increase in 2012. Motor vehicles is predicted to be the lead sector in 2011 with 16.2 percent growth and is anticipated to increase by 15.8 percent in 2012.

Bledowski reports that nine industries are in the accelerating growth (recovery) phase of the business cycle in the Eurozone, while four are in the decelerating growth (expansion) phase. Construction is the lone industry in the decelerating decline phase (late recession or very mild recession), while no industries are in the accelerating decline phase (either early recession or mid-recession).

In Central Europe, six industries are in accelerating growth; six are in decelerating growth; one, construction, is in accelerating decline; and one, petroleum and coke, is in decelerating decline.

\”We are currently on the cusp of an investment-led phase of the cycle, encompassing all regions of Europe,\” Bledowski said. \”Capital goods output is rising at a 13 percent clip in Europe and at an even higher rate in Central Europe, pulling demand for intermediate goods with it. There are signs, however, that export demand is plateauing as intra-European trade itself is experiencing less robust growth.\”

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