The global uptick made everyone happy
In 2017 EU28 industrial production was up by 3.3% and manufacturing expanded by 3.6%.
Similarly to the UK situation, EU28 index of production ran faster than the entire economy which expanded by 2.5% according to today’s second Eurostat GDP release.
Based on calendar adjusted index of volume production, the top three manufacturing performers in 2017 were Romania (+10.0%), Slovenia (+8.7%), and Latvia (8.2%) hinting how Eastern countries are continuing their catch-up path.
After the Great Recession fall (EU28 -16.1% in 2009) and the contractions in 2012 (-2.1%) and 2013 (-0.5%), the last four years have seen a synchronized expansion with an average annual growth of 2.5% for the 28 EU countries.
Big manufacturers are doing well
In 2017 the five big European manufacturing nations (those with manufacturing GVA reaching at least 100 billion Euro) expanded by a rate close or over 3%.
With the exception of France and Italy in 2014, these countries have seen a constant manufacturing growth in the last 4 years and looking at their latest PMI releases, the expansion should not be over yet.
Purchasing Managers’ Indices are flying high all over Europe with figures at, or close to, record high levels. Euro area PMI peaked in December 2017 at 60.6 to just slightly go down in January. The index has been in positive territory for the last 55 months.
It is a story of capital investment
As said for the UK in our past blogs, the global economy and appetite for capital investment have driven the UK manufacturing expansion… and yes, it’s a similar story for the whole of Europe.
The global synchronized growth has pushed (and it is still pushing) firms to invest in capital equipment to satisfy a busy order books. This phenomenon, also detected by our Manufacturing Outlook, gave a boost to capital and intermediate goods production. In 2017, EU countries have increased their capital goods production by 4.5% (up from 2.2% in 2016) and intermediate goods also by 4.5% (1.7% in 2016). In the capital goods market, the best growth amongst the big countries was the one achieved by the UK with a remarkable +7.1%. Lithuania was the best country when all the 28 members are considered (+22.8%).
Consumer goods had a positive year and even if growth in this category wasn’t as high as the one for capital and intermediate goods, the sector expanded by 1.7%, up from 1.4% in 2016.
So manufacturing is on the rise but how does this compare historically?
When talking about UK manufacturing, we have stressed the point few times: manufacturers are doing great but we are not back at the peak level yet. So what’s the situation for the other EU countries?
As our infographic suggests, European countries can be clustered in three groups. This is based on Eurostat comparable data which starts in 2000.
The first one includes those countries that during the first year of the new millennium have reached their highest manufacturing production level. Two of those are part of the big manufacturing countries group: Italy and France. The Mediterranean countries are joined by another Southern country: Greece. These countries appeared to have changed their economy structure way before the 2008 crisis and even if manufacturers are busy (especially in France and Italy) they are still far away from the level reached in the past.
The second group made of nine members, of which also the UK is part of, is composed of countries which saw their top level before the recession - even if they have been growing since then, they are not yet back at the same level. However, there are notable differences within the cluster: the UK is very close to reaching their highest level again (the current index is just 1.7 points lower than the peak), whereas countries such as Spain have still a long way to go (29.1 points less than the peak).
The last group, the biggest in size, is composed by the remaining 16 countries and the EU aggregate is also part of it. These countries have suffered as a result of the great recession as well (i.e. Germany contracted by 17.2% in 2009), but they were able to get back to previous levels and then continue the expansion over the years. Geographically, this cluster is composed by Northern and Eastern economies which creates a mix of well-established and young dynamic economies.
Will the UK be able to move cluster in 2018? Stay tuned to find this out!