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EDITOR IN CHIEF- ABDULLAH BIN SALIM AL SHUEILI

Production grows as recovery continues

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As the Eurozone showed signs of gradually recovering from the fallout of the coronavirus pandemic, its businesses became more confident about the economy in August. The closely watched Eurozone economic sentiment indicator rose 5.3 points to 87.7 in last month, the European Commission said.


The bloc’s factories fared slightly better in July than economists had expected, with industrial production growing 4.1 per cent as the recovery continued. July’s expansion compared to growth of 9.5 per cent in June. Economists say the Eurozone’s recovery is set to slow after an initial release of pent-up demand and as rising coronavirus cases will require further lockdowns.


Nonetheless, economic growth continued in August. Compared with a year earlier, industrial production was down 7.7 per cent. That was an improvement on the 12 per cent gap seen in June. The single currency area’s economic recovery since its record 11.8 per cent second-quarter contraction has been solid, with consumer confidence picking up and businesses reopening.


But the bloc has also suffered a rise in coronavirus cases which threatens to derail the rebound. Economists predict that the Eurozone’s economic growth will slow towards the end of the year. They say it would be hit especially hard if wide-ranging lockdowns are reinstated.


In July though, the production of capital goods climbed 5.3 per cent and durable consumer goods by 4.7 per cent. This suggested solid demand from companies and consumers. The highest increases were seen in Portugal (11.9 per cent), Spain (9.4 per cent) and Ireland (8.3 per cent). However, Daniela Ordonez, European economist at Oxford Economics, said last week that the recovery was “already flattening out”.


She said: “Slower growth in the GDP sub-components (consumption, production) partly explain this trend.” Yet she said it is “the recent deterioration in the health situation – which has also led to lower mobility – that represents the main risk to the near-term outlook”.


The Eurozone manufacturing sector saw “modest growth” for the second month running in August, according to a new survey. However, the factory sectors in Spain and France stagnated while Greek manufacturing declined for the sixth month in a row.


The IHS Markit Eurozone manufacturing purchasing managers’ index – a gauge of the sector’s health – came in at 51.7 in August, virtually unchanged from 51.8 in July. It was “further encouraging evidence that production will rebound sharply in the third quarter after the collapse seen at the height of the Covid-19 pandemic in the second quarter,” said Chris Williamson, chief business economist at data firm IHS Markit.


All three areas – consumer, intermediate and investment goods – grew in August. Output climbed for the second month in a row and hit its highest level in over two years, survey respondents said. New orders also grew for the second consecutive month. IHS Markit said domestic orders rose quickest, with export orders climbing at a relatively modest pace.


However, the sector was far from its pre-coronavirus health and there were pockets of weakness in August. Manufacturing firms continued to slash jobs, laying off workers for the 16th month in a row. German factories cut jobs at the quickest rate.


Meanwhile, Spain and France’s factory sectors flatlined as coronavirus cases rose. In Greece, which has been hit hard by the pandemic economically despite having fewer cases, the sector contracted. IHS Markit said Italian manufacturers were the most optimistic about their future, while French firms were the least confident.


“Manufacturing is currently being buoyed by a wave of pent up demand, but capacity is being scaled back,” said Williamson. “Job losses remained amongst the most prevalent since the global financial crisis.” He added: “The next few months’ data will be all-important in assessing the sustainability of the upturn.” (The writer is our foreign correspondent based in the UK).


Andy jalil


andyjalil@aol.com


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