* Toy industry chief sees 1-2 percent sales growth in 2008
* Positive Christmas sales despite fears of recession
* Increased costs in China boost manufacturing in Europe
* No repeat of 2007 safety recalls before Christmas
By Darren Ennis
BRUSSELS, Nov 4 (Reuters) - Europe's toymakers are likely to buck the economic downturn in 2008 and the spread of the credit crunch into the real economy should not hit sales over the lucrative Christmas period, a top industry official said.
"Toys are relatively recession-proof ... I would be very disappointed if we did not see 1 or 2 percent growth despite the recession," said Bryan Ellis, chairman of Toy Industries Europe, referring to expectations for sales in 2008.
Investors and analysts feared the impact of the worst financial crisis in 80 years on shoppers during the key holiday season may hit pivotal fourth-quarter sales for the world's biggest toymakers, which can account for up to 40 percent of annual revenue for retailers.
"Typically if you look at history, the toy industry has weathered the recessions and financial pressures very well in the past," Ellis, who represents firms such as Mattel Inc, Hasbro and Hornby, told Reuters in an interview.
Mattel, home to Barbie and Elmo, and Hasbro, maker of the Monopoly game, both posted disappointing third-quarter results and Mattel's chief executive, Bob Eckert, has said his company is facing the worst economic crisis of his generation.
LACK OF LIQUIDITY
But Ellis backed Hasbro chief executive Brian Goldner's view that "Christmas will come for consumers and retailers this year".
"They (toys) are a less-expensive present solution, particularly if you look at children's Christmas lists with computers and fashion clothing etc, which tend to be very expensive. You can get a lot of toys for 100 euros," Ellis said.
"So, as long as we get the credit situation sorted out and the industry gets paid, consumers will go on buying toys at the same quantities as previous years and the industry will do well."
Ellis acknowledged a lack of liquidity was putting pressure on toymakers, notably small and medium-size (SME) producers that were finding it difficult to obtain credit from banks bruised by the fallout of the financial crisis.
"Credit is tough for SMEs. People are having cashflow problems, worrying about retail customers, having problems getting credit insurance and banks are being very tough on overdrafts," Ellis said.
"The EU's 4 billion euro ($5.1 billion) SME fund is the sort of money that is very important to us and it needs to get into the hands of our industry quickly at a key time when we maximise production, make deliveries, but haven't been paid yet."
CONSUMER CONFIDENCE
But Ellis said the impact of cost increases and problems stemming from the financial crisis had boosted Europe's toy manufacturing industry, which has suffered severely from a deluge of cheap imports from Asia.
"It has had a very difficult time, especially with competition from Asia, but we are actually bringing products back to be made in Europe, such as Lego's new big factory in the Czech Republic," Ellis said.
"The last thing you need in the current climate is eight- and 10-week lead times out of China. You want manufacturing as close to market as possible. I know for example in Hasbro they try one to three weeks from southern Ireland."
Ellis expects consumer confidence to be bolstered this Christmas by a drop in safety recalls compared with 2007, when over 20 million Chinese-made toys were recalled worldwide over excessive levels of lead paint and other unsafe components.
"Very cheap, unsafe and inadequately made toys are unlikely to be shipped to Europe in the future. The fact you see 700 companies closed in China shows how tough the authorities have got since last year," Ellis said. (Editing by Greg Mahlich)