Nuremberg, 19 February 2014 – Europe is coming out of recession. Economic and income expectations of consumers increased in almost all countries and these were both higher at the end of 2013 than in the previous year. There is still considerable fluctuation in willingness to buy, but here too there is a slight upward trend. These are the findings of the GfK Consumer Climate Europe study in 14 European countries for the fourth quarter of 2013.
The European Commission (EC) is taking an optimistic view of the future. Solid growth is expected for Europe again this year. Although the EC is forecasting zero growth, bottom line, for 2013 as a whole, 1.4 percent is predicted for the current year and this is even set to rise to 1.9 percent in 2015. However, there are still major differences between the individual EU member states. The Baltic states of Estonia, Latvia and Lithuania are expecting growth rates of between 3 percent and 4 percent. Experts in Brussels are only predicting slight improvements in economic performance for EU crisis countries such as Greece, Italy, Portugal and Spain to materialize this year. Cyprus and Slovenia will even have to wait another year before growth rates return to their economies.
While budget consolidation and structural reforms have paved the way for recovery, unemployment will not drop for some time yet. Industry is also warning against excessive expectations. Production and order intake did increase for the fourth consecutive time in October, but the rate of recovery is still very slow. The weak growth rates in production and orders are too low to result in companies hiring additional staff. The EC is not expecting a marked reduction in unemployment in Europe or the eurozone this year. The unemployment rate in the 18 eurozone countries is likely to remain as high in 2014 as in the previous year, at 12.2 percent. For 2015, the EC anticipates a slight decline to 11.8 percent.
This positive trend in Europe has clearly been reflected in the development of the individual indicators over the past year. While the average value for the economic expectations indicator in the EU was -42 points in December 2012, it had risen to -31.9 points in March 2013 and -29 points in June. By September 2013, the indicator had improved by 35 points to +6 points, returning to a positive value for the first time. The indicator had increased to +14 points by December 2013.
Income expectations registered a similarly positive development. The average value for December 2012 was -51 points. In March and June 2013, the value rose to -42.6 points and -40 points respectively. This indicator also recorded a considerable increase of 23 points in September 2013, when the average was -17 points. In December 2013, the value was once again slightly higher, at -12 points.
The development of willingness to buy was not quite so significant, but the average values were also not as low. The indicator across Europe was at -33 points in December 2012 and -28.3 points in March 2013. There was very little change in June (-28 points), but the improvement of 14 points in the third quarter to -14 points was notable. The indicator had improved further by December to close the year at -10 points.
Germany: rosy times for the economy
The Bundesbank (German central bank) is predicting rosy times ahead for Germany. More growth, increased employment, higher salaries for many staff and surpluses in the national budget are all predicted. For this reason the Bundesbank raised its forecast for economic growth in 2014 from 1.5 percent to 1.7 percent. For 2015, it is even predicting an increase of 2.0 percent. Europe’s largest economy by far will therefore achieve a fourfold increase on its growth of 0.5 percent in the previous year. The reasons for this good development are obvious: unemployment is low, employment figures continue to rise and salary increases are normalizing. In addition, interest rates and inflation are low, which is boosting private consumption.
Economic expectations: improvement throughout Europe
The Italian economy is currently not gaining momentum on its own strength. It urgently needs the stimulation from increasing demand elsewhere, resulting in more exports. However, according to the Italian government, the strong euro is preventing a better result in exports. A lower euro rate would benefit exporting companies in international sales because they would be able to sell their products more cheaply without this affecting profits. Prime Minister Enrico Letta has urged the EU to take steps to tackle the high euro rate. Consumers evidently share a similar opinion, or at least they are not expecting the economy to recover imminently or in a lasting way. The economic expectations indicator is currently at -38.4 points.
There is light at the end of the tunnel for Spain. Following two years in recession, the economy registered marginal growth for the first time in the third and fourth quarters. Experts are predicting an increase of around 0.5 percent for the current year and this is expected to rise to 1.7 percent for 2015. Banks have stabilized and the unemployment rate fell for the first time in years, albeit only slightly. All these positive signs are increasingly causing Spanish consumers to have confidence in economic improvement. The economic expectations indicator is currently at 7 points and therefore in the positive range, which signals growth. Since its lowest point in May last year, there has been a rapid increase and the indicator has risen by 45 points overall.
There are increasing indications that the economy will improve again this year in the Czech Republic. Although 2013 was still characterized by the recession which lasted a total of two years, consumers are clearly anticipating economic development. Predictions that the economy will improve again this year and achieve robust growth were evidently credible. The economic expectations indicator is currently at 8.6 points. The value increased rapidly by around 60 points in the period between January 2012, when it was at its most recent low, and November 2013. It is now at its highest level since December 2009.
Income expectations: gradual recovery
The Greek economy continued to battle against the severe recession at the end of 2013, although the decline in economic performance steadily fell. Experts are expecting a return to slightly positive growth for the first time this year. Unemployment is still extremely high, at significantly more than 27 percent. Greeks have gradually been using up their savings and are looking into an uncertain future. Nonetheless, hope for income increases over the next few months has been slowly but steadily rising. This could be attributable to two developments: first, the EU is subsidizing the construction of four key motorways. This project should establish 6,000 new jobs as well as improving the competitiveness of the region where the motorways are being built. Second, Greeks are hoping that the tourist season will be as good as in the previous year, creating extra jobs, and therefore income, for a few months at least. The income expectations indicator is currently at -33.1 points, which is its highest value since February 2010.
Portugal intends to leave behind the need for the EU bail-out package this year. The economy appears to be coming out of recession. For 2014, the EC is forecasting growth of 0.8 percent. Despite this, consumers are understandably extremely cautious when it comes to expectations for budgets. The government’s austerity path continues to be extremely stringent and salaries are falling further. Nonetheless, the positive news is increasingly convincing Portuguese consumers that an upturn and consequently also increases in income are in the pipeline. The income expectations indicator has risen continuously over the past year to -23 points in December, which is its highest value since September 2010. This value is still extremely low and clearly shows that although incomes will not yet increase in the coming months, they are on an upward trend.
The Slovak economy is hoping to benefit from its close foreign trade partner, Germany, this year and generate substantial growth as a result. The National Bank of Slovakia is forecasting an increase of 2.2 percent, while inflation and above all prices are expected to remain low. There was a surprising fall in food and energy prices at the end of 2013. Consequently, consumers will actually also keep some extra money in their pockets following the imminent salary increases. In addition, the government has raised the minimum wage by €14 to €352 per month. These positive signs are causing consumers to take a more optimistic view of the future. The income expectations indicator increased further in the fourth quarter of 2013 and is currently at 21.5 points. This is its highest value since April 2010 and represents an improvement of almost 23 points on the previous year’s figure.
According to experts, a change of course is only possible in France if the government implements radical reforms in the economic and tax policy. Until now, it has only tried to plug the holes in the budget through tax increases. The impact of this on consumers’ income expectations has been decisively negative. Although the indicator climbed by around 16 points in the middle of the year, it has since remained at a very weak level of around -40 points.
Willingness to buy: high unemployment prevents rapid increase
Although the economy in the Netherlands is gradually coming out of recession, this is not yet having an impact on the buying mood. This is partly due to the fact that consumers are still struggling with the upshot of salary cuts in the previous year and the effects of the recession. They are still having to keep a tight hold on their purse strings. The situation on the labor market is also not easing yet and unemployment is still at 6.9 percent. This development is also reflected in the willingness to buy indicator. It is currently at -20.8 points.
Despite the continuous growth over the past few years, Romania is still one of the poorest nations in Europe, although the level is very gradually developing upwards. This is also reflected in purchasing power data, for example. According to GfK, the per capita purchasing power in 2013 was €3,491 on average. This only equates to 27.1 percent of the European average. On account of only gradual recovery being registered in the EU, Romanian consumers’ hope that they will have more money available for making major purchases in the coming months is also rising. While the willingness to buy indicator is still clearly negative at -12.1 points, the trend towards the end of the year was quite clearly upward.
In Austria, private consumption, investments and availability of new loans are all being made more difficult due to the budget consolidation efforts and to some extent also the high level of private debt. This development is clearly reflected in the strong fluctuations of willingness to buy in 2013. At 7.8 points, the indicator was slightly lower in December than in January, when it was 9.1 points. However, experts are predicting that the consumption mood will increase once again over the course of the current year in tandem with the improving economy.
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