High-technology manufacturing saves the EU industry

Signing ceremony of the Memorandum of Understanding to finance the key enabling technologies: Philippe de Fontaine, Vice-President of the European Investment Bank, Antonio Tajani, Vice-President of the EC in charge of Industry and Entrepreneurship and Johannes Hahn, Member of the EC in charge of Regional Policy (from left to right). (EC Audiovisual Services, 27/02/2013).

Signing ceremony of the Memorandum of Understanding to finance the key enabling technologies: Philippe de Fontaine, Vice-President of the European Investment Bank, Antonio Tajani, Vice-President of the EC in charge of Industry and Entrepreneurship and Johannes Hahn, Member of the EC in charge of Regional Policy (from left to right). (EC Audiovisual Services, 27/02/2013).

According to a study by Eurostat, the EU statistical service, high and medium technology industries saved the manufacturing sector from a much larger fall during the difficult crisis years from 2008 until 2010. Still, the industrial sector has not yet fully recovered and in January 2013 compared to December 2012, seasonally  adjusted overall industrial production fell by 0.4% in both the euro area and the EU27, according to estimates released by Eurostat. In January 2013 compared with January 2012, industrial production also decreased by 1.3% in the euro area and by 1.7% in the EU27.

High technology

The Eurostat study about high and medium-high technology industries, authored by Thomas Jaegers, Carmen Lipp-Lingua and Digna Amil, proves that this segment of the industrial sector was the power house of growth. The writers concluded that high-technology industries rose by 26 % since first quarter of 2005 while low-technology industries shrunk by 6 %. It is obvious that, if it was not for the high technology manufacturing, the European industrial sector would have suffered a much stronger blow from developing countries’ competitors.

In detail the fall in production during the crisis years in high-technology manufacturing was half as large as in total. Total industrial production dropped by almost 20 percentage points during the financial and economic crisis, between the first quarter of 2008 and the second quarter of 2009. Afterwards the overall production index rose until it regained, in 2011, the level of 2005. Since 2011 however industrial production has remained rather stable.

According to the three Eurostat authors, “the European production level of high-technology industries in the third quarter of 2012 was more than 21 percentage points higher than in 2005 and more than 12 percentage points higher than during the crisis. For medium-high-technology manufacturing and for medium-low-technology manufacturing the fall between the first quarter of 2008 and the second quarter of 2009 was stronger than for industry as a whole (31 percentage points and 26 percentage points respectively)”.

Recent developments

Concerning the more recent developments in the EU‘s industrial sector, a 13 March Eurostat Press release reveals that, “in January 2013 compared with December 2012, production of durable consumer goods fell by 1.4% in the euro area and by 0.4% in the EU27”. As for the investment goods sector the same source observes that production decreased by 1.2% in both zones during the same period. Intermediate goods produce rose by 0.1% in the euro area and fell by 0.1% in the EU27. In the non-durable consumer goods subsector, output “increased by 0.9% and 1.3% in Eurozone and EU27 respectively”. Eurostat also notes that among the Member States for which data are available, industrial production fell in nine and rose in nine. The largest decreases were registered in Finland (-4.1%), Luxembourg (-3.8%) and Latvia (-3.5%), and the highest increases in Lithuania (+4.4%), Denmark (+4.3%) and Portugal (+3.5%).

Returning to the high-technology manufacturing the Eurostat study concludes, that recovery “was driven by pharmaceuticals and air and spacecraft machinery. The decline in the production of high-technology businesses between the second quarter of 2008 and the first quarter of 2009 was mainly due to a fall in the production of computers, electronic and optical products”.

It is obvious that competition from developing countries is the key factor for European manufacturing growth. In the fields of electronics and computers, where international competition is strong European manufacturing appears very vulnerable.  The opposite is true for pharmaceuticals and air and spacecraft machinery, where competition from developing countries is minimal.

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