Economic divide in Europe : Findings of the GfK Consumer Climate Europe and USA for the first quarter of 2013

gfkNuremberg, 24 April 2013 – High unemployment and the continued slowdown in economic growth in the Southern European crisis countries in particular is still hampering economic development in the European Union (EU). While the countries moving towards recovery are mainly in Northern and Eastern Europe, the next year will again be difficult for the crisis countries in the South and West. These are findings of the GfK Consumer Climate Europe and USA survey, which provides an overview of the development of economic and income expectations and willingness to buy among consumers in 12 European countries and the USA.

The fear that the financial and debt crisis will flare up again is back with a vengeance throughout Europe. Major strikes in Greece have once again crippled the economy. Portugal reported that it would not reach its savings targets. Cyprus only narrowly avoided bankruptcy with a major foreign bailout at the last minute. Following the recent election, the political situation in Italy has reached a stalemate and a new election has been called. It still remains to be seen when a stable government can be established, or if this is even possible.

Europe is suffering under the impact of the various crises. In March, unemployment reached the highest value ever recorded since the introduction of the euro: 19 million Europeans were jobless. It therefore continues to be Europe’s biggest problem. The unemployment rate is 12.0 percent. However, there are huge differences between regions. While one quarter of the population in Greece and Spain do not have a job, the figure for Austria and Luxembourg is much lower at just over 5 percent. The countries themselves are not solely to blame for high unemployment and debt. Companies in the crisis countries are also heavily indebted. Accumulated debt in relation to gross domestic product (GDP) is 186 percent for Spanish companies, 158 percent for Portuguese, 134 percent for French and 289 percent for Irish companies. Companies burdened with such high debt levels are not able to invest, nor can they generate fresh growth or create new jobs. It is therefore not just national budgets that need to be put back on their feet, as companies must also do everything in their power to improve their liquidity again.

USA: citizens more optimistic, despite cuts

Following the failed negotiations relating to budget sequestration, the USA is facing major cuts. This year alone, the country must reduce spending by US$85 billion (approx. €65 billion). Virtually all areas must cut their budgets by up to 8 percent. According to experts, several hundred thousand jobs are therefore at risk. This is likely to end the already sluggish economic upturn in the USA following the severe 2008/2009 financial crisis. The impact on public life will be palpable. Waiting times at airports and with the authorities are likely to increase, national parks will potentially have to partly or completely close and thousands of teaching posts at schools may be lost. The true consequences will only become apparent in time.

In March, the effects of sequestration were already evident in the slowdown of jobs being established in the private sector. While 237,000 new jobs were generated in February, this had fallen to just 158,000 in March, far below the 198,000 predicted by experts. Analysts are expecting labor market figures to continue falling over the next six to nine months. Although Congress was able to considerably reduce the impact of particularly tough austerity measures, experts predict that sequestration will cause economic growth to be between 0.5 percent and 0.6 percent lower this year than originally forecast.

The sequester was initially created as a sanctioning measure in 2011 to allow the House of Representatives and Congress to reach agreement on the budget debate and find solutions to combat the national deficit. Most recently, Congress had to extend the temporary budget plan to 27 March so that the federal government could continue to pay its bills. The country’s debt ceiling will also have to be raised by 19 May at the latest, because otherwise there will be a real risk of national insolvency. Budgetary problems resulted first and foremost from the inability of federal states, towns and communities to pay accrued pension claims and entitlements, as well as other retirement benefits. Americans are gradually realizing that the sequestration saving of US€85 billion is a paltry sum in comparison with the long-term budget problems that the country will face in future. Despite these difficulties, there has been an increase in optimism among the population. In housing, for example, building figures were higher in February than they have been for more than four years. Private consumption was also the highest it has been in five months.

Economic expectations: 2.1 points Average: +12.9 points
Income expectations: +3.6 points Average: +17.7 points
Willingness to buy: -7.1 points Average: -5.5 points

Germany: affected by global recession

The weaknesses in the eurozone are now also having an impact on the German economy. The fall of 0.6 points in the final quarter of 2012 has been the worst value to date. Growth in the German economy is slower than was previously assumed. The growth forecast for 2013 is currently between 0.5 percent and 0.8 percent of GDP. The stable German economy is therefore no longer able to fully escape the impact of recession in the eurozone and the global downturn. However, the general conditions in the country are still extremely good. The government has been maintaining its course of consistent budget consolidation. By 2015, it will not be taking on any new debt. Unemployment has reached a historically low rate of 5.3 percent and youth unemployment is one of the lowest in Europe, at 7.9 percent. Employees continue to expect increases in their wages and salaries. This is also substantiated by initial salary agreements this year.

Economic expectations: 0.6 points
Income expectations: 29.4 points
Willingness to buy: 36.2 points

Economic expectations: Greece and Spain hope to overcome the recession this year

The consumer outlook is very varied throughout Europe when it comes to assessing how their country’s economy will develop in the coming months. While hopes for economic recovery have risen quite noticeably in some countries, they have stalled or even been crushed further in others. The highest indicator values are currently in Austria and Germany (both 0.6 points), followed by Romania (-13.6 points). The most negative outlook with regard to economic improvement was reported in Portugal (-43.4 points), France (-41.6 points) and Greece (-36.9 points).

The end of 2012 marked the end of yet another year in recession for the Czech Republic. According to the European Commission, GDP fell by 1.3 percent overall. Over the course of the year, this is expected to gradually improve again. Although zero growth is forecast for 2013, the population is expecting to see significant economic progress in the coming months. Rising employment levels are supporting this assumption. At the end of 2012, the rate had improved by 0.9 percent year-on-year. Correspondingly, Czechs’ economic expectations rose by more than 20 points in the first three months of the year. The indicator is currently at -17.5 points, which is the highest value since February 2011.

The Greek economy is at rock bottom and although recovery is not expected in 2013, it is anticipated that the negative growth rates will slow down. Following a fall in GDP of 6.4 percent in 2012, the European Commission predicts this will drop to -4.4 percent this year. According to this forecast, for the first time after six years of recession, marginal growth of 0.6 percent is expected in 2014. It remains to be seen whether these figures will be confirmed over the course of the year. Greek experts are split into two camps with regard to this forecast. One side does not have confidence in the drastic austerity measures and believes the recession will continue for many more years. The other supports the government and Troika measures and agrees with the European Commission’s forecast. The population is increasingly hopeful that the second expert assessment is correct and is anticipating a slight improvement in the economic situation over the course of the year. The economic expectations indicator has risen steadily over the last few months and is currently at -36.9 points. The indicator has steadily been improving since the low of -61.8 points in February last year.

Following a 1.4 percent fall in GDP last year, Spain is facing another year of recession. The European Commission envisages that the negative growth value will be similar this year. Despite this, Spanish consumers seem to be regaining hope. A number of economic experts are expecting the Spanish economy to grow again in 2014, provided it manages to reverse the trend this year. The fact that unemployment is not rising as dramatically is also seen as a positive sign. This development is also reflected in economic expectations. At present, the indicator value is -32 points, which is approximately 20 points higher than in December.

Income expectations: rising income through falling unemployment in Romania

Income expectations generate a similarly heterogeneous picture. Consumers are confident about rising or stable income levels in Germany (29.4 points), Austria (7.6 points) and the Czech Republic (-3.3 points). In contrast, French (-57.9 points), Italian (-51 points) and Portuguese (-50.8 points) consumers are all anticipating further salary decreases as well as rising taxes and contributions.

Romanians are generally taking an optimistic view of the future. Economic growth is rising while unemployment is dropping. At present, the European Commission reports that 6.7 percent of Romanians do not have a job. This is one of the lowest rates in Europe and a substantial rise is not expected in the medium term, at least. A greater number of jobs leads to rising income in the population. This is clearly reflected in the income expectations indicator, which is currently at -5.36 points. When compared with the previous year’s value (-22.7 points), it is clear that the situation on the labor market has changed considerably over the last 12 months.

With their votes at the end of February, Italians showed that they oppose the austerity dictate coming from the EU in Brussels and are not willing to make any further sacrifices. Many citizens evidently speculated that the election would be won by the party pledging to take a clear stance against the austerity course determined by Brussels. Income expectations support this conclusion. In January, the indicator was -61.7 points, but just before the election in February it rose markedly to -45.1 points. After the party which had intended to slow down the austerity drive was not triumphant, the indicator dropped again in March to its current level of -51 points.

Although Poland is generally still in a pleasing economic position, citizens are anticipating a fall in income. This is attributable to declining economic growth and relatively high inflation as well as rising unemployment levels. However, consumers cherish the hope that the labor market will be revived following the long, harsh winter. This is also evident in income expectations, with the indicator currently at -22.1 points. But in comparison with December 2012, it has risen by 10 points.

Willingness to buy: France needs extensive reform

Citizens in most European countries have had to tighten their purse strings and budget more stringently. However, Germans (36.2 points), Austrians (18.2 points) and Bulgarians (10.9 points) are still quite willing to spend money. In contrast, the Portuguese (-44.7 points), Italians (-44.4 points) and French (-36.2 points) have to be much more cautious.

In the United Kingdom, consumers are still keeping close watch on their money. Although the government has lowered some taxes, social security contributions have risen. Most Brits therefore have very little money left over. Inflation has been stable at just under 3 percent for many months now and unemployment has remained at just below 8 percent. Although these figures are relatively high by UK standards, this stability is seemingly giving rise to confidence that the situation will not deteriorate in the coming months. This is reflected in willingness to buy. Consumers are gradually becoming more prepared to spend disposable income on major investments. Since December, the indicator has climbed 11.6 points to its current level of -35.6 points, which is the highest value since December 2010.

In comparison with the other major EU economies, the crisis seems to have hit France hardest, after Italy. Every month, unemployment reaches a new record value. According to the European Commission, it is currently at 10.8 percent, but among the under 25s, one in four do not have a job. The French have now seemingly reached the conclusion that only extensive structural reform of the labor market, tax and social system will be able to reverse this trend. For the time being, however, this means further cuts for consumers. The standard of living will therefore not remain at its current level. In line with this, willingness to buy of French consumers is low. The indicator is currently at -36.2 points, which is the worst value since April 2010.

About GfK

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