Findings of the GfK Consumer Climate Europe study for the third quarter 2014
Nuremberg, 16 October 2014 – European consumers are no longer as optimistic about the future as they were in June. Over the past three months, economic expectations have fallen in almost all countries in the survey, with quite substantial declines recorded in some areas. The upward trend for both income expectations and willingness to buy also appears to have come to an end in many countries. The GfK consumer climate index for the EU 28 is currently at 4.2 points compared with 9.1 points in the previous quarter. These are the findings of the GfK Consumer Climate Europe study.
The economic development in almost all European Union (EU) countries has been significantly lower than economic institutes and governments had predicted in spring. In some countries, economic performance has in fact begun to fall again. This is attributable to a variety of very different reasons.
Germany is no longer the engine room of economic growth in Europe, with its economy actually declining slightly by 0.2 percent in the second quarter. According to experts, growth is expected to return again in the third quarter, albeit remaining somewhat weak. While German consumers continue to enjoy shopping, the export-oriented sector of the economy has been encumbered by weak foreign demand. This is affecting countries of the EU as well as emerging nations such as Brazil, China and Russia. The economies of these regions have seen very strong growth in some areas in recent years. However, growth rates have in the meantime slowed and are in the single-digit range. Consumers have to a large extent fulfilled their need for material things and are not consuming as much as they have in the past.
Two of the largest economies in Europe, France and Italy, continue to have major structural problems. There are so far no indications that this will change in the coming months or that governments are beginning to undertake and above all fully enact major reforms.
The major conflicts that have recently been dominating the global stage are a further consideration. These include the tensions and economic sanctions between Russia and the EU, the war in the Middle East, the threat posed by Islamic State (IS) and the political transition in Turkey. These events are all contributing to increased uncertainty among consumers. Companies and banks have therefore been holding back from investments and granting loans. This is in turn having a direct impact on the economic performance of the individual countries.
The low level of inflation is also a factor. In September, inflation was 0.3 percent across Europe. This is the lowest value in almost five years. A number of countries are already battling against deflation, which means consumer prices are falling.
This difficult situation is also reflected in the Ifo Business Climate Index. In September, it dropped to its lowest value in Germany since April 2013. In many Eastern European countries the business climate is currently in worse shape than it was a decade ago. In addition to the economic sanctions, statements by Russian President Vladimir Putin are also impacting the Eastern European economy.
European consumers share the view of businesses that the economy is no longer as stable as it was in early summer. In June, the GfK Consumer Climate indicator for all 28 countries in the EU climbed to 9.1 points, which is its highest value since April 2008. It has since fallen by almost five points. In September, the indicator was only at 4.2 points.
Germany: economic expectations plummet
The consumer sentiment in Germany has noticeably deteriorated over the course of the last quarter. In June, the economic expectations indicator was at 46.2 points, which is the highest value in more than three years. It has since completely crashed, falling almost 42 points. The indicator is currently at 4.4 points.
At 54.7 points in July, income expectations climbed to the highest value since 1991, when the data for a unified Germany was published for the first time. Given that consumers are expecting economic development to be considerably weaker, their income expectations have also fallen slightly. The indicator is currently at 43.4 points and therefore still at an extremely high level.
Willingness to buy has also declined by around 10 points over the past quarter. While the indicator reached a high of 53.2 points in June, the best value since December 2006, it has since decreased by almost 11 points. However, it is still at a very good 42.5 points at present.
The French expect weak income development
French consumers are still not confident that their economy can achieve any growth. Over the past three months, economic expectations have declined by 6.5 points and are currently at -26.8 points.
They also believe that incomes will continue to fall. At -36.4 points, this indicator is only slight higher than in June of this year.
In light of these framework conditions, it comes as no surprise that consumers are not keen to go shopping. Willingness to buy dropped by more than five points over the summer and the indicator is currently at -29.8 points.
United Kingdom: uncertainty due to Scottish independence referendum
Although the UK economy is clearly growing, consumers are considerably less optimistic about the next few months than they had been in June. Economic expectations have dropped by more than 13 points, but the indicator is still at a very good level of 24.6 points. The Scottish referendum on independence which took place in September is one possible reason for this decline. However, Scotland voted to remain part of the UK and the general economic data is extremely good, meaning that a higher value is to be expected again in October.
British consumers are not confident that they will see an improvement in their income situation. The indicator dropped by 6.5 points over the summer and is at 1.5 points at present. This is the lowest value since December last year.
Only willingness to buy was able to record a slight increase, rising to -2.2 points. However, the negative value shows that UK consumers are still exercising great caution with regard to buying more expensive products. A positive value was recorded for the first time since August 2007 when it climbed to 0.1 points in August. In comparison with September 2013, the indicator has risen by around 21 points overall.
Italy: country still considered to be in crisis
In Italy, economic expectations dropped significantly, with the indicator falling to -28.7 points in September. This is a difference of 15.7 points in comparison with June.
Italians have once again abandoned hope that incomes will begin to rise again. While the indicator was the highest it has been since June 2009, at 4 points in May this year, it plummeted to -14.5 points by September. It is therefore virtually on a par with the value recorded in February.
Only willingness to buy improved slightly. At -6.4 points, the indicator is still negative, but it has clearly gained in value since June. It is now at the highest value since May 2011.
Spain: confidence about sustainable upturn
Spain’s economy has been achieving strong growth again since the start of this year, albeit rising from a very low level. In the meantime, confidence has also now also returned among consumers. They anticipate an improved economic development for the next few months as well. The relevant indicator was at 24.5 points in September, after reaching 31.1 points in August, which is the highest value since October 1999.
In contrast, income expectations have dropped a little since June and are currently at 5.4 points. However, this positive value is a testament to the fact that Spanish consumers expect incomes to rise slightly over the coming months. One reason for this development is the falling rate of unemployment.
At -9.1 points, willingness to buy is still negative. Consumers continue to keep a tight hold of their purse strings and do not feel it is currently prudent to buy higher value goods.
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.
About GfK
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