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Manufacturing powers European recovery

03-02-2011
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Europe’s manufacturing industries expanded at the fastest pace in six months in January, boosted by growth in Germany.

Exports have helped fuel the euro region’s expansion as countries from Spain to Greece toughened austerity measures.

In Germany and France, the region’s two largest economies, business confidence jumped during January.

European Union Economic and Monetary Affairs Commissioner Olli Rehn said the region’s recovery “has taken hold and is progressing.”

Andreas Rees, an economist at UniCredit in Munich said: “German and French companies are powering ahead in Europe, therefore reinforcing the upswing of each other. “We stick to our growth forecast of 2.5 per cent this year. Admittedly, one should not exclude an even stronger figure of 3 per cent.”

Germany, Europe’s largest economy, is powering the region’s expansion. And manufacturing exports were the initial spark that lit the German recovery

Business confidence unexpectedly rose to a record in January, while factory orders rose five times more than economists forecast in November last year and exports also increased.

Meanwhile, Britain’s manufacturing boom looks set to continue – although rising factory gate prices are threatening to stoke inflation even higher, a recent survey has revealed.

Manufacturing output prices rose at the fastest pace since October 2008 in the final months of last year, according to a survey by the Confederation of British Industry.

And prices are expected to continue their sharp rise in the first months of this year.

“Manufacturers seem to be having considerable success in passing on chunky price rises to customers,” said Samuel Tombs of Capital Economics.

“Thankfully for the rest of us, output price inflation tends to take over a year to feed through to consumer price inflation – but the survey will no doubt add to fears that inflation will be slow to fall from its high rate later this year,” he warned.

Factory output increased further in the final quarter of 2010, the CBI reported. “The manufacturing sector has continued to recover at a brisk pace,” said Tombs.

The number of manufacturers recording a rise in output was 16 per cent higher than the number reporting a fall – up from October’s positive balance of nine per cent.

“This was driven primarily by growth in export orders (+13 per cent),” the report said.

The news chimes with recent positive data for the sector.

The British Government’s Office for National Statistics (ONS) confirmed that manufacturing had grown for 13 straight months, and was up by 5.6 per cent in November, compared with the previous year.

Manufacturers expect output to keep growing in the coming months, with a positive balance of 18 per cent of firms expecting more export orders, the CBI survey said.

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