Much of Europe Stumbles Into Recession

Central Europe’s Resiliency Weakens

Presented by:Kris BledowskiSenior Economist kbledowski@mapi.net

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Europe’s Economies are Slowing

Gross Domestic Product, 2012 forecast

Source(s): Eurostat and European Commission and MAPI

2007

Q1

2007

Q2

2007

Q3

2007

Q4

2008

Q1

2008

Q2

2008

Q3

2008

Q4

2009

Q1

2009

Q2

2009

Q3

2009

Q4

2010

Q1

2010

Q2

2010

Q3

2010

Q4

2011

Q1

2011

Q2

2011

Q3

2011

Q4

-10

-8

-6

-4

-2

0

2

4

6

Domestic Demand Exports

Per

cen

t C

han

ge

Exports Support Growth in the Absence of Government Demand

Domestic Demand and Exports, Eurozone

Source(s): Eurostat

2007

Q1

2007

Q2

2007

Q3

2007

Q4

2008

Q1

2008

Q2

2008

Q3

2008

Q4

2009

Q1

2009

Q2

2009

Q3

2009

Q4

2010

Q1

2010

Q2

2010

Q3

2010

Q4

2011

Q1

2011

Q2

2011

Q3

2011

Q4

2012

Q1

32

34

36

38

40

42

44

46

48

7.0

7.5

8.0

8.5

9.0

9.5

10.0

10.5

11.0

Long-term unemployed Unemployment rate

Per

cen

t o

f al

l Jo

ble

ssUnemployment Rate Inches Up and Long-Term Jobless Ranks Swell

Unemployment in the Eurozone

Source(s): Eurostat

Percen

t Un

emp

loyed

Industrial Sentiment IndicatorJa

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0

Jul-

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Jan

-01

Jul-

01

Jan

-02

Jul-

02

Jan

-03

Jul-

03

Jan

-04

Jul-

04

Jan

-05

Jul-

05

Jan

-06

Jul-

06

Jan

-07

Jul-

07

Jan

-08

Jul-

08

Jan

-09

Jul-

09

Jan

-10

Jul-

10

Jan

-11

Jul-

11

Jan

-12

-50

-40

-30

-20

-10

0

10

20

30

40

Czech Republic Eurozone

Dif

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on

In

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Forward-Looking Indicators Point Toward Slower Industrial Growth

Source(s): Eurostat

2007

Q1

2007

Q2

2007

Q3

2007

Q4

2008

Q1

2008

Q2

2008

Q3

2008

Q4

2009

Q1

2009

Q2

2009

Q3

2009

Q4

2010

Q1

2010

Q2

2010

Q3

2010

Q4

2011

Q1

2011

Q2

2011

Q3

2011

Q4

-24

-21

-18

-15

-12

-9

-6

-3

0

3

6

9

12

GDP Manufacturing

Per

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(Yea

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Eurozone’s Manufacturing Sector Is Outperforming the Overall Economy…

Inflation-Adjusted GDP Versus Manufacturing Production Index, Eurozone

Source(s): Eurostat and MAPI

2000

Q1

2000

Q3

2001

Q1

2001

Q3

2002

Q1

2002

Q3

2003

Q1

2003

Q3

2004

Q1

2004

Q3

2005

Q1

2005

Q3

2006

Q1

2006

Q3

2007

Q1

2007

Q3

2008

Q1

2008

Q3

2009

Q1

2009

Q3

2010

Q1

2010

Q3

2011

Q1

2011

Q3

2012

Q1

65

67

69

71

73

75

77

79

81

83

85

Eurozone Poland

Manufacturing Sector Capacity Utilization Rate

Source(s): Eurostat

Per

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f C

apac

ity

…But Industrial Capacity Usage Is Far From Pre-Recession Levels

Industry

Inflation-Adjusted Percent Change

2011 2012(F) 2013(F)

Fabricated Metals 6.8 3.9 4.6

Machinery & Equipment 11.6 3.5 3.7

Chemicals 0.9 3.3 4.2

Electrical equipment 5.1 3.3 3.9

Computers & electronics 9.1 2.8 4.6

Motor vehicles 12.1 2.1 2.7

Construction -1.2 1.5 2.5

Food, beverages, tobacco products 1.3 0.3 -0.5

Petroleum & Coke -0.2 -0.1 -0.4

Rubber & Plastics 4.2 -0.2 -0.2

Paper & products -0.5 -0.6 -0.4

Non-Metallics 2.9 -0.6 -0.4

Wood & products 1.4 -1.8 -0.9

Textiles -3.2 -5.9 -6.8

MAPI Manufacturing Production Forecast, Eurozone

F=ForecastSource(s): Eurostat and MAPI

Investment Goods Top Industrial Growth Tables

Industry

Inflation-Adjusted Percent Change

2011 2012(F) 2013(F)

Motor vehicles 17.2 12.8 14.1

Electrical equipment 37.9 12.7 14.6

Rubber & Plastics 11.0 5.4 5.5

Machinery & Equipment -6.5 3.6 7.1

Construction -6.5 1.4 0.0

Chemicals 5.8 0.9 1.7

Computers & electronics 0.3 -1.4 -6.1

Paper & products 0.4 -2.9 -0.3

Non-Metallics 2.9 -3.2 -3.2

Fabricated Metals 12.8 -5.2 2.9

Wood & products -10.8 -5.4 -2.4

Food, beverages, tobacco products 1.0 -5.7 -8.4

Petroleum & Coke -4.0 -6.4 -2.9

Textiles 13.0 -9.9 -10.4

MAPI Manufacturing Production Forecast, Central Europe

F=ForecastSource(s): Eurostat and MAPI

Central Europe Decelerates Sharply on the Back of Eurozone’s Recession

• Economic Riskso External growth environment weakenso Fiscal straightjacket dampens domestic demand

• Political Riskso Anti-Establishment Political Parties Wino Resentment Toward Brussels-Centered Policies Grows

• Greece – a Special Case?o New parliamentary election likelyo Lurch to the left possibleo Deadlock over IMF program looms in Juneo Political instability a stepping stone to Eurozone exit?

Risks to Outlook