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Travel, trucks and tools put Europe on the move

28 July 2010, 22:06 CET

(PARIS) - When travel takes off, something in the world is stirring and the latest airline data together with signals from factories across Europe suggest that the economic machine is getting back in gear.

Air travel is highly sensitive to the economic climate and the airlines suffered terribly, losing billions of dollars (euros) as the global financial crisis of 2007-08 pushed the developed world economies deep into recession.

Now the industry is back at near pre-crisis levels, with passenger numbers jumping 11.9 percent in June as a booming Asia region drove the industry forward, the International Air Transport Association said on Wednesday.

"The industry continues to recover faster-than-expected but with sharp regional differences," IATA Director General Giovanni Bisignani.

Much depends on Asia, and especially its powerhouse economy China where the government has begun to rein in some of the stimulus measures adopted to help the country get through the worst of the global slump.

That is a major concern too in Europe, where growth is less robust and governments have announced austerity programmes in an effort to balance the public finances after spending massively on stimulus measures.

"Business confidence remains high and there is no indication that the recovery will stall any time soon," Bisignani said.

"But, with government stimulus packages tailing off and restocking largely completed, we do expect some slowing over the months ahead," he added.

Air freight grew 26.5 percent in June, IATA said, a crucial indicator of overall business activity that has been matched in a recent improvement in the Baltic Dry Index, which reflects demand for cargo vessels which carry the goods we buy in the shops.

This indicator has lost about 60 percent over the past 15 months, reflecting the savage impact of the global slump on trade, but last week it posted a notable rise, to 1,826 points from the previous week's finish at 1,720.

Analysts at Fearnleys maritime agents said they were seeing a pick-up in demand which would suggest that the index was turning for the better.

Other sounds and numbers from factory floors, steel mills and economic indices point in the same direction.

On Wednesday, ArcelorMittal, the world's biggest steelmaker, reported unexpectedly strong quarterly profits 1.7 billion dollars (1.31 billion euros), more than reversing a year-earlier loss of 792 million dollars.

Sales in the quarter jumped 43 percent as demand for steel -- a basic component in consumer goods from cars to fridges -- roared back into life, helped especially by China.

French auto group PSA Peugeot Citroen said it too returned to profit in the first half of 2010, with earnings of 680 million euros after a loss of 962 million euros in the same period last year.

Shares in both AreclorMittal and PSA fell, partly on disappointment and partly because of some clouds ahead, but the underlying signal is matched by other signs.

PSA's performance reflects the strong recovery in the auto industry generally. Renault has reported a 21.6-percent leap in first-half sales.

German carmakers are riding a wave, reporting strong demand from Asia, with Daimler announcing plans to ramp up output alongside a strong profit forecast for 2010. Audi, for example, says it is straining to meet demand in China.

There are other important signs from deep within European industry.

The German machine-tool industry, a supplier to industry around the world, expects output to rise by 3.0 percent this year.

And the biggest supplier of ball bearings, a vital component of machinery everywhere, SKF of Sweden which also makes sealants, reported a big increase in profits in the second quarter.

Demand for trucks is a leading indicator of activity in every sector of the economy, and two of the main European truck makers, Scania and Volvo trucks in Sweden, have reported unexpectedly strong second-quarter results.

Last week, figures showed German business confidence jumped sharply in July to 106.2 points from 101.8 points in June.

"Firms are reporting significantly more favourable business conditions," the Munich-based Ifo institute, which compiled the data, said.

"The German economy is in party mood again," it added.

The Markit purchasing managers' index for the eurozone, another important leading indicator, accelerated for the first time for three months in July, although analysts warned that activity might moderate in coming months.

Britain, fresh from a record-long recession, is also doing much better, with the economy growing 1.1 percent in the second quarter.

"This is an absolutely incredible growth number -- way above all expectations and the best performance since the first quarter of 2006," IHS Global Insight economist Howard Archer said of last week's data.


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