Further recovery, but risks in the periphery
Findings of the GfK Consumer Climate Europe study for the second quarter of 2014
Nuremberg, 11 July 2014 – The economy in the European Union (EU) is continuing to recover. However, the crises in both Iraq and Ukraine could potentially destabilize the upturn in Europe. European consumers are also regaining confidence. This is reflected in the development of the indicators for economic expectations, income expectations and willingness to buy in most countries that are included in the survey. The GfK consumer climate index for the EU 28 is currently at 9.1 points. These are the findings of the GfK Consumer Climate Europe study.
Over the past three months, the debate in Europe has above all been dominated by three topics: the European election, the question of whether individual countries should continue to impose cuts or invest in economic programs, and the crises in Iraq and Ukraine.
Despite all these debates and crises, the upswing in individual EU countries appears to have been consolidated, and therefore in the EU as a whole. The consumer climate index for the EU 28 increased slightly in the second quarter, to 9.1 points at present. This is the highest value since April 2008, when the indicator was at 11.9 points. The various indicators are on an upward trend in most countries. Greeks, in particular, appear to be of the opinion that the worst is now behind them. Polish and Czech consumers are also taking a considerably more optimistic view of the future than they did at the start of the year.
Spend or save?
The European election revealed that opinion throughout Europe increasingly appears to be divided into two camps: pro-European and anti-European. Euroskeptic parties recorded a strong increase in votes in France and Germany, in particular. In contrast, approval for Europe has risen considerably in Greece, Italy and Spain. On the one hand, the next European Commission must help the crisis-ridden, economically weak countries to overcome their difficulties and return to economic growth. On the other hand, countries which are stronger in economic terms are now becoming increasingly irritated when stability criteria for crisis countries are eased. They first and foremost want to see national budgets being consolidated to reduce the risk of a renewed crisis.
The European Commission will continue to focus intensively on whether each individual country should continue to impose austerity measures, and with what severity, or to what extent higher borrowing is justified in order to get the national economies back on track. Euroskeptic support will only begin to gradually lessen if it is possible to find an effective, sustainable solution, which brings the whole of Europe back on to the growth path again.
A further ongoing factor of economic uncertainty is the crises in Iraq and Ukraine. The impact of the crisis in Iraq is already evident in the increasing price of crude oil. If it lasts or actually affects the available volume of crude oil, fuel will be subject to price rises, which will rapidly have a knock-on effect due to higher transportation costs for many products. The Ukraine crisis is primarily playing a role in psychological terms and the country is relatively insignificant for the EU from an economic standpoint. For example, only 0.5 percent of German exports are made to Ukraine. However, the global economy is currently in a fragile state. If there is additional insecurity, then investors will generally become more cautious, demand higher risk premiums or put investment decisions on the back burner for the time being. Share prices will consequently fall and, in the wake of general uncertainty, consumers will therefore buy less. Once such a spiral has been set in motion, the results can be quite dramatic.
Germany: robust economy ensuring good mood
The German economy is robust once again and unemployment is low. These good framework conditions are causing the mood among consumers to be very positive. All three indicators in Germany are at an extremely high level. Economic expectations even increased quite significantly once again, rising by 13 points in the second quarter. At 46.2 points, the indicator is the highest it has been since June 2011, when it was at 50.3 points. In comparison with June 2013, this equates to an increase of more than 44 points.
Income expectations only improved slightly since March to reach 47.2 points in June. Year-on-year, this represents an increase of 11 points. However, the indicator peaked at 52.3 points in April, which is the highest value since August 2000, when the indicator was at 52.5 points.
Willingness to buy dropped a little since March and is currently at 53.2 points. Given that the indicator is at such a high level, the fall of 2.3 points is virtually inconsequential. When compared with the value in June 2013, the indicator has risen by 16.7 points.
France: uncertainty among consumers
The mood of the French population continues to be defined by ongoing uncertainty. The values of all three indicators are quite markedly negative. In June, economic expectations reached -20.3 points, which is an improvement of 9.5 points on the end of the first quarter. However, taking into account the developments over the past year, this equates to a rise of 28.4 points. The indicator dropped to -48.7 points in June 2013, which is the lowest value since it fell to -57.1 points in March 2009.
Income expectations have passed through a series of peaks and troughs over the past three months. In March, the indicator was -32.6 points, but it plummeted to -54.7 points in April. However, it had recovered somewhat by June and is currently at -37.7 points. The indicator has risen by around 20 points on the previous year’s figure.
The spending mood of French consumers is currently also restrained, but it is on an upward trend. The willingness to buy indicator is currently at -24.2 points, which is up 3.1 points on March’s result. In comparison with June 2013, the indicator has improved by 18 points.
United Kingdom: consumers confident of continued economic upswing
The economy in the United Kingdom is continuing to improve. This is also reflected in the development of the consumer sentiment. In June, the economic expectations indicator was 37.9 points, which is 6.4 points more than in March. It is the highest value since June 1997, when the indicator climbed to 40.4 points.
At 8.0 points, income expectations are also above the long-term average of zero points. Since March, the indicator has fallen slightly. However, the value has clearly improved in comparison with June 2013, when it was at -20.2 points.
Only willingness to buy deviated from the otherwise positive mood, although even that indicator registered an increase. The value was -10.9 points in March and it was even -29.5 points one year ago. At -3.3 points at present, the indicator is still negative, but it has reached the highest value since August 2007, when the indicator was last above zero at 1.6 points.
Italy: cautious optimism
Although all indicators in Italy are still recording negative values, the mood has been on a clear upward trend since Matteo Renzi became Prime Minister. In June, the economic expectations indicator was -13.0 points, which is an increase of 8.4 points from March. At -6.8 points in May, the indicator even reached the highest value since April 2010, when it was -2.7 points. It has registered an overall increase of 20.5 points in comparison with June 2013.
In June, income expectations were at -1.6 points and therefore slightly below the long-term average of zero points. This represents an increase of 12.1 points in comparison with March, and even marks a rise of 23.6 points on June 2013. The indicator also reached an interim peak of 4.0 points in May. A higher value was last recorded in September 2002.
The spending mood among Italian consumers has been slowly but steadily improving. While willingness to buy is still clearly negative at -12.5 points, it has risen by 36.5 points since June 2013, which is a sign of clear recovery. At -11.7 points in May, this indicator also climbed to the highest value since July 2011, when it was at -7.6 points.
Spain: confidence in upturn
The gradual onset of economic recovery in Spain is also reflected in the mood of consumers. Although economic recovery was only 1.5 points in the second quarter, the figure is almost 49 points when compared with June 2013. In May, the indicator climbed to 28 points, which is the highest value since it reached 30.1 points in November 1999.
Income expectations have also improved slightly and are currently at 9.5 points. The indicator has therefore risen by 41 points since June 2013 and is now at the highest value since November 2001.
Even the spending mood of Spanish consumers is steadily improving. The indicator value is still negative, but only just, at -4.4 points. Over the course of the last year, willingness to buy has risen by around 30 points. It is currently at the highest level since February 2011, when it recorded a value of 33.4 points following a brief upsurge.
Greece: long and arduous road out of crisis
Although Greece has not yet left the hard times behind, it is on the right track. Economic data is improving and GDP is only just in the negative range. Greek consumers evidently also share this opinion. Although all indicator values continue to be negative, so are below the long-term average of zero, the upward trend since August last year is plain to see. Economic expectations are currently at -10.0 points, which is 14 points more than in March and around 24 points up year-on-year. A higher value was last recorded in December 2009.
Income expectations are also on the road to recovery. In June, the indicator value was -18 points, which is the highest value since January 2010 and represents an increase of 11 points from March. The indicator has risen more than 23 points on last year’s figure.
An upward trend is also evident for willingness to buy. The indicator is currently at -14.6 points, which is the highest value since October 2009. In the second quarter, the indicator gained 11.5 points while the increase since June 2013 is 15 points.
Portugal: working its way out of the crisis
The Portuguese economy is also clearly continuing to recover on the whole, despite the fact that, following a strong increase in GDP growth at the end of 2013, zero growth was achieved in the first quarter. Consumers appear to take a similar view. In June, economic expectations were -0.5 points, after reaching an interim peak of 5.5 points in May. A better value was last recorded in March 2000. The indicator was at -43 points one year ago.
Income expectations are still clearly negative, but this indicator is also on an upward trend. At present, the indicator is at -16.7 points. The highest value for quite some time was again recorded in May, at -13.6 points. The indicator was last above this in April 2010. It was at -43.6 points one year ago.
Willingness to buy is always an indicator that responds with some time delay. The spending mood only improves once the economy has gained momentum and incomes have actually started to rise. From the point of view if consumers, Portugal has not yet reached this position. Accordingly, willingness to buy is currently at -28.7 points. While this equates to an increase of almost 4 points since March and 14.5 points since June last year, the level is still extremely low.
About the study
The findings of the GfK Consumer Climate Europe are taken from a consumer survey carried out in all countries of the European Union on behalf of the European Commission. Approximately 40,000 individuals, representing the adult population in the EU, are surveyed on a monthly basis in 28 countries.
The GfK indicators of the Consumer Climate Europe are based on monthly surveys focusing on consumer sentiment. They deal with the general economic situation in the different countries and the situation of individual households.
The questions on the GfK Consumer Climate Europe are asked on a monthly basis, primarily in an omnibus survey. This is a survey dealing with several issues, conducted either by telephone or in a face-to-face interview.
From the monthly range of 12 questions overall, five questions that play a decisive role for the consumer climate are selected for the GfK Consumer Climate Europe.
The selected five indicators – economic expectations, price expectations, income expectations, willingness to buy and propensity to save – are calculated as follows:
“Net totals” are used as a basis for calculating the indicators. The share of consumers who gave a positive response (e.g. the financial situation of the household will improve (considerably)) is subtracted from the share of those who gave a negative response (e.g. the financial situation of the household will worsen (considerably)).
In a further step, this net total is standardized using established statistical methods and then converted so that the long-term average of the indicator is zero points and there is a theoretical value range of +100 to -100 points. However, on an empirical basis, values between +60 and -60 points have generally been realistic since 1980.
If an indicator is positive, this shows that consumers’ assessment of this variable is above average in a long-term comparison, and vice versa for negative values. Standardization makes it easier to compare the indicators of different countries, as variations in response behavior resulting from different mentalities are offset, while the fundamental trend of the indicator remains unchanged.
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