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Economy in Brief

Industrial Production Gains in Europe:  Can That Pattern Be Sustained?
by Carol Stone September 7, 2005

Industrial production in Europe appears to be holding up well, according to data for four countries reported today for July. Month-to-month movements are a bit erratic, but trends are distinctly upward, nonetheless.

As Louise Curley explained here yesterday, Germany's manufacturing sector is growing, at least for the present. Her commentary on factory sales data cited their 3.8% gain in July. The production behind those sales was up 1.3%, with total industrial output (excluding construction) up 1.1%. This was the second marked increase in a row after a sluggish performance in the winter and spring. The July gains were widespread across individual industries, with only petroleum refining, machinery and electrical equipment experiencing declines; that in machinery followed spike in June.

In Norway, total industrial production was up 1.1% in July after a drop of 6.2% in June. Oil and gas extraction dominates Norwegian industry; that sector rose after two sharp declines, and has been on an extended downtrend. By contrast, Norway's factories saw a small downtick in July, but prior increases have pushed their year-on-year performance to 4.0% growth, a pick-up after a small increase in 2004 and annual declines running all the way back through 1999.

In Hungary and Slovakia, modest increases in July followed declines in June, but year-on-year gains are substantial, at 5.8% and 4.7%, respectively. These countries' industrial sectors have been expanding vigorously for at least the last four years, and the gains in Hungary for one version of its index go back to 1993.

Thus, as we indicated at the beginning, European industry seems stronger than might have perhaps been expected, given the high level of the euro and the high level of energy prices. However, this latter factor in particular may yet become burdensome for these nations. Louise Curley also pointed out here yesterday that domestic new orders in Germany have already turned flat. So it remains to be seen how long the recent gains in European production can be sustained.

Industrial Production* July 2005 June 2005 Year/Year 2004 2003 2002
Germany 1.1 1.4 0.6 3.0 0.4 -1.0
Norway 1.1 -6.2 -3.4 2.0 -4.1 0.9
Oil & Gas Extraction 1.2 -9.5 -5.7 -1.5 -1.7 -1.5
Manufacturing -0.1 1.1 4.0 1.5 -4.3 -0.9
Hungary 1.2 -1.6 5.8 8.4 6.6 3.3
Slovakia 0.2 -0.5 4.7 4.2 5.0 6.4
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