While manufacturing output figures indicate a positive trend for 1994, confidence in the economic recovery is being weakened by consumers' concern over tax hikes get tax hikes.
How the index works: the six factors by which each country's performance is measured are GDP in manufacturing, excluding oil and construction; productivity; levels of finished stock; current order books; capacity utilisation; and change in consumer prices. All statistics are taken from the EU database to ensure strict comparability. Both graphs are compiled by KPMG's Centre for Manufacturing Consultancy.
Source: EC Commission/WEFA.
- The index this month has been updated to show relative manufacturing performance since January 1991 in the UK, Germany, France and Italy. At that time, Germany was at the height of the post-unification boom, while the UK had already experienced a severe period of recession. The graph clearly shows a steady increase in UK performance since the start of 1992. This indicates that economic recovery, although tentative at times, started two years ago.
- Manufacturing output in the UK rose by 1.1% in January. This reflected strong growth in mechanical, electrical and electronic engineering output. Manufacturing output in the three months to January was 0.6% higher than in the previous three months, indicating a positive trend for 1994. Factory gate inflation in February was lower than expected at 3.3%, reflecting a fall in input prices by 3.6% over the year to February. A recent survey by the CBI suggests that factory gate inflation should stay low in the short term.
- Following a period of instability in 1992/93, comparable interest rates in the four European countries are now converging: Germany, France and the UK all have three-month rates of 5-6%.
- Confidence in the UK's economic recovery, supported by the rise in manufacturing output, is being damaged by lower consumer confidence caused by concern over the budget tax increase. A recent Gallup survey showed that 42% of consumers expect to be worse off in 1994. Only 17% expect to see an improvement.
- Earnings growth in manufacturing industry continues to rise faster than in service industries - up to 4.5% in the year to January. Consequently, unit labour costs (the amount spent on wages and salaries on each unit of output) have risen to a 16-month high, up 1.3% in the three months to January.
- The European Commission stated in its annual economic report that recession in the EU is coming to an end. Growth is predicted to be 1.3% this year and 2.1% in 1995, although unemployment levels will continue to increase for another two years. Unemployment in Germany rose to four million (10.5%) in February. This is split between western Germany (2.74 million) and eastern Germany (1.29 million.)
- Unemployment in the UK fell in January to 2.75 million (9.8%). The decrease occurred in all regions, in particular in the North, East Anglia and the South West. The recent falls in unemployment may, however, be caused by the decrease in size of the working population.
- The US government announced that gross domestic product in the last quarter of 1993 surged ahead at an annual rate of 7.5%. This is the US economy's strongest performance in nearly 10 years. Growth in 1993 as a whole was just under 3% and is predicted to be just over 3% in 1994.