Hope of an end to the crisis: Findings of the GfK Consumer Climate Europe study for the third quarter of 2013

gfkNuremberg, 21 October 2013 – Hope is spreading throughout Europe that the worst of the crisis has been overcome and that the economy is gradually beginning to recover. A number of countries registered considerable growth in some areas in the second quarter, while the downward trend at least slowed down significantly in others. These are the findings of the GfK Consumer Climate Europe survey, which provides an overview of the development of economic and income expectations as well as willingness to buy among consumers in 14 European countries.

Since the second quarter, hope that the financial crisis has bottomed out has been rising. The economy of the European Union (EU) registered slight growth again of 0.4 percent on the previous quarter. France, Germany, Portugal and the United Kingdom all recorded considerable increases in some areas. The Italian and Spanish economies also seem to have recovered slightly, although they are still shrinking. In France, the foreign trade deficit significantly declined and a positive balance of trade was even achieved in Greece. In Portugal, the number of unemployed declined for the first time in two years.

There are a number of reasons for this recovery in Europe. Exporters are benefiting from modest global growth. In some countries, consumers are now becoming increasingly prepared to spend more money again. Policy is slightly more clearly departing from its stringent austerity path, which had been holding domestic economies back. Particularly in the Southern crisis countries, tourism has helped improve the situation.

In summer, the EU registered its first marginal decline in the overall number of unemployed. However, the rate is still at 11.0 percent. A true trend reversal on the labor market is therefore not yet on the horizon. It is in fact again expected that even more people will become unemployed in the coming year. A significant fall is only expected to begin in 2015. However, experts do not anticipate that the pre-crisis level will be reached again in the medium term.

Bank lending also continues to be extremely low. And the weak growth stimulus that will potentially develop in the coming months will certainly not be sufficient for halting the ongoing increase in the debt mountain of EU countries.

Germany: clear growth

Together with France, Germany helped pull the eurozone out of recession in the second quarter. The economy grew by 0.7 percent on the previous quarter. When comparing the figures with the second quarter of 2012, the registered rise is even 0.9 percent. Experts are also anticipating clear growth of between 0.5 percent and 0.8 percent for the second half of 2013. In its latest forecast, the German Institute for Economic Research (Deutsche Institut für Wirtschaftsforschung, DIW) predicted that the German economy will follow a moderate upward trend, which is expected to accelerate in the coming year. In 2014, the economy is expected to see growth of between 1.6 percent and 1.9 percent. However, in order for this to occur, a quite significant improvement in the currently rather weak investment activity of companies over the next few months is a prerequisite. These expectations are not unfounded given the economic recovery worldwide, including in the eurozone.

Germany held a general election in mid-September. With her union of CDU and CSU, German Chancellor Angela Merkel achieved considerable gains and only just fell short of attaining an absolute majority. In contrast, coalition partner FDP failed to win the votes needed to gain representation in the German Bundestag for the first time since 1949. As a result, experts are not expecting the formation of a new government to occur quickly. At present, the most likely option is a grand coalition of CDU/CSU and SPD. For consumers, the most interesting aspect in the forthcoming coalition negotiations will be the discussions relating to tax rates. The CDU/CSU categorically excluded any tax increases in their election campaign, but the SPD would like to introduce new taxes, imposing higher rates on the most wealthy in the country. An ongoing debate on tax could have a detrimental impact on the income expectations of Germans. However, a complete collapse is not to be expected. According to Eurostat, seasonally adjusted unemployment continues to be extremely low at 5.2 percent and the labor market remains stable. This is ensuring certainty for planning purposes. Given that interest rates will remain at a historically low level in the foreseeable future, it is likely that Germans will continue to spend their money on major purchases. Private consumption will therefore continue to greatly support economic growth in future too.

Economic expectations:        10.7 points
Income expectations:        33.7 points
Willingness to buy:        45.0 points

United Kingdom: prices on real estate market begin to rise again

Things are beginning to stir in the United Kingdom. The economy continued to grow after the first quarter and the pace is steadily increasing. Between April and June, growth was 0.7 percent. For the first time in almost three years, all major sectors of the British economy went up at the same time. For the year as a whole, the Organization for Economic Co-operation and Development (OECD) is now expecting growth of 1.5 percent, which is almost twice the figure initially predicted.

In its acute crisis management, up until a year ago the government implemented the toughest government austerity program for generations to curb the national deficit. Slamming the brakes on the economy initially made the situation even more difficult. In order to mitigate the consequences, the central bank has been pouring money into the market. However, the success of this policy was at first rather restrained. As a result of the lack of growth in the economy, the budget fell into further difficulties. The mood has now turned. The real estate market is the best indicator of this shift. The strongest increase in house prices in almost seven years was registered in June.

This development is being attributed to three factors: first, the situation in the crisis-ridden eurozone, which is the UK’s key trade partner, has stabilized, at least for the time being. Second, public spending has risen over the past four quarters, which has stimulated demand, and finally, the banks are in a better position. It appears that following a long period of stagnation, the credit cycle has gained momentum again. However, the path to a prospering economy is still some way off. So far, the upswing has primarily been attributable to private consumption and increased public spending. In order to achieve sustainable recovery, exports and investment in companies must both also increase. Both continue to be at extremely low levels and are even declining. The current account deficit, which is the difference between imports and exports, has climbed to its highest level in more than two decades, despite the pound sterling having depreciated by around a quarter in value in relation to currencies of key trade partners over the past four years. The government will have to return to a more restrictive austerity policy. In view of stagnating income levels, consumers will also not be able to spend more than they earn in the long term.

Economic expectations:        19.2 points
Income expectations:        0.1 points
Willingness to buy:        -23.3 points

France: slight upswing, but still much to do

Europe’s second largest national economy was most recently the problem child. However, it has now also come out of recession, and with considerably greater momentum than expected. In the second quarter, gross domestic product (GDP) grew by 0.5 percent. Despite this, the situation remains fragile. The government did not rule out that GDP may shrink slightly for 2013 as a whole. Unemployment has continued to rise. In addition, the government is struggling to get a grip on its budget. The deficit will be higher than the 3.7 percent that had been expected until now. In spring, the European Commission (EC) already gave France more time to gain control of its finances. The country has until 2015 to reduce its budget deficit to below the 3 percent threshold again.

In order not to permanently burden the treasury, France must carry out comprehensive reform of pensions. However, there is immense pressure against this from the unions and employees. One of the greatest points of contention is the step-by-step increase in years of contributions required, from 41 years at present to 43 years from 2035, including an extension of working life. To date, the government has categorically ruled out raising the legal age of retirement. However, the current shortfall of €15 billion in the pension pot is at risk of rising to €22 billion by 2020. Although the birth rate in France is higher than the European average, the above-average increase in life expectancy erodes the positive effects. The steady rise in unemployment over the last two years has caused a considerable escalation of the situation. While there were four citizens of working age for every pensioner in 1960, the ratio has now dropped to 1.4:1. Experts predict that it will have fallen further to 1.2:1 by 2050.

Economic expectations:        -10.6 points
Income expectations:        -42.1 points
Willingness to buy:        -36.6 points

Italy: government crisis threatens weak upswing

This summer, an end to the recession was in sight for Italy. Although the economy contracted for the eighth consecutive time, it was half of what had been feared, at only -0.2 percent. Manufacturing production grew for the second month in a row in June, by 0.3 percent. The Purchase Managers’ Index for industry climbed to its highest level in more than two years in July. Retail sales recently increased for the first time in more than 14 months. The buying mood among consumers is also improving again. Despite this, a restructuring of the budget, which is the greatest problem for Italians alongside unemployment, is still by no means possible. With a deficit of almost €9 billion in July, the country is still very far from dropping to the EU’s debt ceiling for new indebtedness. National debt is currently at almost 130 percent of GDP. The debt mountain looks set to rise further still over the coming months because Prime Minister Enrico Letta was forced to make considerable concessions in the coalition negotiations with Silvio Berlusconi’s party. This included abandoning the recently introduced real estate tax and the planned VAT increase will also now probably not be implemented. As a result, the government will be losing out on around €5 billion. Adding to this are social benefit measures amounting to €1.4 billion.

Economic expectations:        -34.8 points
Income expectations:        -16.9 points
Willingness to buy:        -15.9 points

Spain: booming tourism boosting confidence

Spain is edging closer to the end of its lingering recession. In the second quarter, GDP only dropped slightly by 0.1 percent. A return to slight growth is expected for the second half of the year. So far, business owners have remained skeptical. Many only expect sustainable recovery to be achieved next year. However, there are some positive indicators: the number of unemployed dropped for the fifth consecutive month in July, falling by almost 65,000 to 4.7 million. This is primarily attributable to the upturn in the tourism industry, which required many additional employees during the summer vacation season. It generates around 10 percent of GDP. Now that the real estate bubble has burst, some banks are slowly starting to put the crisis behind them.

However, there is still some way to go before pressure on government finances eases. The high deficit, in particular, is cause for concern. The state has already had to tap into social security reserve funds on a number of occasions in order to be able to afford pension payments. Due to high unemployment, ever fewer Spaniards are paying into the pension pot. The number paying social security contributions is the lowest it has been for a decade.

Economic expectations:        -1.8 points
Income expectations:        -11.8 points
Willingness to buy:        -17.6 points

Portugal: light at the end of the tunnel

The financial crisis triggered the deepest recession in Portugal since the 1970s. However, the downward spiral is losing momentum. The unemployment rate has been falling slowly but steadily since March. The business climate has been brightening for seven consecutive months. In the second quarter, the economy as a whole grew by a surprising 1.1 percent in comparison with the previous quarter. This was the first growth in around two and a half years. But there still is a clear decrease of 2.5 percent in GDP in comparison with the same quarter of the previous year.

Portugal’s Constitutional Court has declared the government’s reform plans illegal. The plans intended to potentially make several thousand civil servants redundant, especially teachers and office staff. The country may now fall short of meeting the requirements it was obliged to fulfill as part of its rescue from state bankruptcy in 2011. This is already the third time the Constitutional Court has declared that a key government reform is in breach of the constitution. Following the renewed rejection, the Portuguese government must now develop a new package of reforms in order to achieve the overall cuts of €4.7 billion as agreed with the troika comprising the European Central Bank (ECB), the European Commission (EC) and the International Monetary Fund (IMF).

Portugal is currently in negotiations with the troika for a third easing up of conditions for a reduction in the budget deficit. The government wants to reach a deficit of 4.5 percent of GDP by 2014, rather than the previously agreed 4 percent. For 2013, it is aiming to achieve 5.5 percent, rather than the 3 percent target set in 2011.

Economic expectations:        -29.5 points
Income expectations:        -38.2 points
Willingness to buy:        -42.2 points

Greece: surprising primary surplus achieved

The Greek budget deficit decreased considerably in the first half of 2013. Nonetheless, national debt continued to rise and a potential debt cut is becoming more likely. Between January and June, the deficit was close to €5 billion, while over the same period in the previous year, it amounted to almost €12.5 billion. This year, Athens will potentially already achieve a primary surplus (a budget surplus without taking into account interest payments). This was successfully realized in the first seven months of 2013. It came as a surprise that the state took in €2.6 billion more than it spent. However, interest payments are not included in this statistic. Despite greater savings than expected being realized in the first half of the year, there are still major gaps with regard to income. This is primarily attributable to outstanding and reduced tax payments: the deadline extension for income tax declarations of naturalized citizens until the end of July, further delays for tax increases and a collapse in excise duties.

At the beginning of September, the troika carried out a further inspection visit in Greece. The Greek government was obliged to have implemented a number of reforms by this point. The most controversial plans included making around 4,000 public servants redundant. In addition, Greece had to fulfill a quota of transferring 12,500 public sector workers to a “mobility reserve” by the end of September, which is a prelude for potential dismissal at a later date. However, the troika observed that little progress had been made in implementing the necessary reforms. Taxes are not being collected as required. Privatization is also not progressing nearly as planned. Owing to the high state deficit of 160 percent of GDP, a potential third rescue package is now under discussion for Greece.

Economic expectations:        -41.1 points
Income expectations:        -46.8 points
Willingness to buy:        -25.1 points

Netherlands: still in recession

The economic crisis has a firm grip on the Netherlands, the former model eurozone state. The real estate market has collapsed. Unemployment is rising. At the end of 2012, the Netherlands slipped into recession for the third time in four years. Since 2009, the country has exceeded the EU deficit threshold every single year. Despite this, the government rejected a heavy austerity package of €4 billion in April which was actually planned for this year. In the second quarter, the economy registered a minus of 0.2 percent in comparison with the previous quarter, which is an improvement on -0.4 percent in the first quarter. For the year as a whole, experts are predicting a minus of around 1 percent. The growth forecast for 2014 was corrected downwards from 0.75 percent to only 0.5 percent.

The main reason for this poor economic situation is the ongoing real estate crisis. Since 2008, house prices have fallen by 30 percent overall. Many Dutch nationals are in deep trouble because their mortgage debts are higher than the current value of properties. Mortgages amount to €650 billion, which is a record value in the eurozone. Private household debt equates to 250 percent of disposable income.

The crisis has long since taken hold in all sectors of the economy. Unpaid loans are putting a strain on banks. In February, the fourth largest financial institution in the Netherlands was nationalized for just under €4 billion. Ratings agency Fitch consequently lowered its outlook for the country’s creditworthiness to negative. Its top AAA rating hangs in the balance.
But there is actually hope for recovery. At the beginning of October, the Dutch Central Bank announced that the economy might have overcome recession in the third quarter. In the second quarter, there was a slight rise in exports, which is the first sign of economic recovery in the Netherlands. Dutch exports are benefiting from improving international trade and economic growth in Germany. And the confidence of purchase managers in industry recently improved.

Economic expectations:        -17.3 points
Income expectations:        -42.7 points
Willingness to buy:        -21.8 points

Austria: rising unemployment encumbers economic growth

In the second quarter, Austria registered growth of 0.2 percent, which is a slight plus for GDP, but still below the eurozone average of +0.3 percent. Growth was last this strong at the beginning of 2012. Foreign trade is currently providing the greatest growth stimulus for the economy. The crisis in the Austrian construction industry reached its nadir in the summer with the insolvency of the constructor ALPINE Bau. In the retail sector, the chains Dayli and Niedermayer were forced to file for insolvency. These factors contributed to the increase in unemployment. According to national data, unemployment was 6.9 percent at the end of August. This equates to 263,000 Austrians without a job and a further 60,000 in training. Compared with August 2012, unemployment has grown by 13.1 percent. All areas have registered increases: youth (+8.4 percent) and prime working age (+11.1 percent), but above all those aged 50 plus (+22.0 percent). Joblessness is affecting all levels of education, but university degree level unemployment recorded the greatest rise (+14.6 percent). Despite these factors, Austria’s unemployment is still extremely low by comparison with other European countries.

From a political perspective, the last few months were strongly influenced by disputes relating to the National Council (Nationalrat) elections. The specific focus was on factors concerning Austria as a business location and the potential introduction of wealth taxes.

Economic expectations:        6.7 points
Income expectations:        15.1 points
Willingness to buy:        11.7 points

Poland: reduce national deficit and tackle unemployment

The economic wonderland until now, Poland is increasingly becoming affected by the crisis. As a result of Leszek Balcerowicz’s reforms in the 1990s, Poland has so far been able to weather the financial crisis more effectively than other European countries. Affluence has almost doubled over the past ten years. Since accession to the EU in 2004, Poland has achieved glowing growth rates of between 6 percent and 7 percent. Between 2003 and 2008, unemployment was reduced from 20 percent to less than 7 percent. However, by now, economic growth has slowed down quite considerably. Last year, it only just reached 2 percent. For 2013, experts predict that it will fall further to 1.5 percent. Unemployment has now risen to more than 10 percent again. It is not just the continued severity of the economic crisis in Europe that is causing problems for Poland. The country is also beginning to reach the limits of its present growth model. The strong upswing in recent years was above all attributable to strong domestic demand. Following years of economic scarcity as a socialist state, the demands of citizens were extremely high. This stimulated consumption, from which small and medium-sized companies in particular benefited. They constitute the foundation of the Polish economy. The weaknesses of the old reforms are now beginning to become apparent. The labor market is highly deregulated. During boom periods, this was not a problem. However, one of the reasons why unemployment is rising so quickly now is because there is no protection against dismissal and no short-time working. Temporary contracts are the order of the day.

The government is trying to counteract this trend. Following years of growth, the Polish government now intends to curb debt. Prime Minister Donald Tusk is expecting the deficit to be zł.44.7 billion (approximately €11.2 billion). In order to remain within the budget, taxes on tobacco and alcohol are to be increased. In future, tax on high percentage alcoholic drinks is to increase by 15 percent. In return, the government is promising to invest zł.1 billion (€237 million) more in tackling unemployment.

Economic expectations:        -9.0 points
Income expectations:        -1.8 points
Willingness to buy:        -4.7 points

Czech Republic: flood disaster may boost economy

The political situation in the Czech Republic is not settling down. The country once again faces new elections. After only one month in office, Prime Minister Jiří Rusnok and his expert government failed to win a parliamentary vote of confidence. However, he will remain in office in an acting capacity until the new election is held in October. Former Prime Minister Petr Nečas only recently resigned in June following a corruption and spying scandal.

The economy is also not at its best. However, the flood disaster in June is likely to lead to a surge in growth for the Czech economy. The state intends to help those affected as quickly and unbureaucratically as possible. The EU is also providing resources from its Solidarity Fund. According to experts, the momentum of rebuilding will cause economic performance to improve by 0.7 percentage points. The Czech economy is much in need of this positive one-off effect. Domestic consumption remains weak. The drop in investments and stagnation in state spending make for a bleak outlook. The Czech Republic is in recession for the second year in a row. The amount of investment needed as a result of the flood disaster might brighten prospects for the country again slightly.

At least part of the slight quarter-on-quarter growth of 0.6 percent in the second quarter is potentially already attributable to this extraordinary boost. However, when compared with the same period of the previous year, the figure is -1.3 percent. Forecasts for 2013 as a whole are extremely cautious. Economic performance looks set to fall by 1.5 percent. Only next year will the predicted upturn begin to take effect. Predictions for growth in 2014 range from 0.8 percent to 2.1 percent.

The weakness of the economy is largely attributable to the Czech automotive sector, which has been affected by the sales crisis on the European market. A decline in production of 6 percent on the previous year’s figure is expected.

Economic expectations:        0.6 points
Income expectations:        16.5 points
Willingness to buy:        -25.8 points

Romania: reforms for professional qualifications aim to secure specialists

For 2013, all experts are anticipating a slight revival in the so far extremely weak Romanian economy. The forecasts for this improvement vary from 1.6 percent to 2.0 percent. Between 2014 and 2016, the Romanian economy is expected to see growth of between 2.7 percent and 4.3 percent. According to current estimates, GDP rose by 0.5 percent in the second quarter. The overall economic framework conditions are favorable: national debt is at around 34 percent, the budget deficit is around 2.5 percent and unemployment is in the region of 7 percent.

However, Romania still needs a number of reforms in order to be able to keep pace with other European countries on a lasting basis. A great many companies are still owned by the state. Hopes for further privatization were dashed again and again in the chemical, mining and transport industries, in particular. There are also still problems with regard to the judicial system and the black market. Invitations to bid very often feature irregularities and the Romanian government must improve its very poor payment behavior in some areas.
Private consumption is playing an increasingly important role in Romania. Real income is rising. In central Romania, for example, some areas have virtually zero unemployment. The additional weak area of professional training was recently reformed. Since 1989, the country had barely invested in this area, but now there is a new legislation, on the basis of which professional qualifications can be completely rebuilt. This relates to practical qualifications, which aim to meet the demand of local labor markets by working in close collaboration with business and state institutions. The aim is to guarantee the availability of qualified professionals and at the same time offer young people good career prospects. This is a key step, particularly in view of high youth unemployment.

Economic expectations:        -11.5 points
Income expectations:        -4.5 points
Willingness to buy:        -21.1 points

Bulgaria: ongoing protests against new government

In spring, Bulgarians held protests demanding a new election. The demonstrations were triggered by excessive electricity costs, but quickly developed into protests against the political system as a whole. However, citizens do not seem to think that the new government is doing a better job. Since 14 June, thousands of Bulgarians have been taking to the streets out of anger about corruption, cronyism and impoverishment. They have been demanding that the Prime Minister, independent politician Plamen Orescharski who is backed by the Socialists, stands down.

The Bulgarian economy has so far been struggling to get back on its feet. In the second quarter, GDP fell by 0.1 percent. Experts are predicting growth of 0.9 percent for 2013 as a whole. Unemployment is 13 percent. A large share of the population is living on the bread line.

The most pressing areas of economic policy in Bulgaria continue to be reform of public administration, an improvement in legal certainty, transparent open invitations to bid, professional and academic qualifications and tackling corruption. If Bulgaria makes progress in these areas, foreign companies will increasingly invest in the country.

Economic expectations:        -10.5 points
Income expectations:        -9.1 points
Willingness to buy:        15.2 points

Slovakia: battle against unemployment and national debt

With an increase of 2.4 percent in 2012, Slovakia is among the national economies to register the strongest growth in the eurozone. However, the economic engine is increasingly starting to falter. In the second quarter, growth was only 0.3 percent. The domestic economy remains the Achilles heel of the Slovakian economy. As in previous years, the improvement in GDP is almost exclusively attributable to exports. Foreign trade relations are strongly dependent on the EU. Almost two thirds of the country’s total imports are from EU members and more than 80 percent of exports are to the European market. Very little has changed in this weighting despite the onset of the debt crisis. Traditionally, Germany has been the key sales market for Slovakia. If the German economy is successful in achieving sustainable recovery, this would also have a positive impact on the Slovakian economy by the end of the year.
As in previous years, domestic demand is not expected to provide a stimulus this year. As a consequence of falling real income and high unemployment, private consumption is not expected to stimulate growth. In view of the ongoing budget pressure, the state is also cutting back on spending.

As is the case in many other countries, national debt also increased dramatically during the economic crisis. New indebtedness was at around 8 percent in both 2009 and 2010, and it dropped to approximately 5 percent in 2011 and 2012. The EC predicts it will be 3 percent this year. The government is primarily focusing on increasing income which is negatively affected by the investment climate in the country. The success concept for the flat tax rate was abandoned with the introduction of a second tax rate for higher earners and an increase in the corporation tax from 19 percent to 23 percent. A higher bank levy, increased extra duty for companies in regulated industries and increased social security contributions complete the package of fiscal measures.

Economic expectations:        -2.0 points
Income expectations:        8.2 points
Willingness to buy:        -5.1 points

Economic expectations: Europeans confident about economic recovery

Economic expectations are on a clear upward trend in almost all countries. Only in Greece and Italy is there stagnation. Between July and September, the greatest growth was registered in Austria, the Czech Republic and France. At present, the lowest indicator value is in Greece (-41.1 points), Italy saw a small improvement (-34.8 points) and there was a significant increase in Poland (-29.5 points), although it is still the third lowest value overall. Over the next few months, economic growth is expected in the United Kingdom (19.2 points), Germany (10.7 points) and Austria (6.7 points).

Consumers in the United Kingdom are starting to buy again, the state is investing and citizens’ economic expectations are picking up sharply. The indicator is currently at 19.2 points. It has risen by around 12 points since the summer and is even up around 41 points from its lowest level in March this year. The economy grew by 0.6 percent in the second quarter. By the end of the year as a whole, experts are predicting an increase of 1.5 percent. The current upswing should certainly be enjoyed with some caution because it is principally based on private consumption, followed by state investment. However, if income levels stagnate, British consumers will not be able to buy more in the long term. The government will also be forced to return to an austerity course sooner or later in order to consolidate the budget. The hope remains that the current generally favorable economic mood will carry over to investments from companies and exports. Then there is a real chance of a sustainable, widespread upswing.

In France, economic expectations have steadily recovered over the last few months. The indicator is currently at -10.6 points. Although the value remains distinctly negative, it is far from the -48.7 points recorded in June. French consumers are hopeful that the economic recovery of the last few months will continue and stabilize. In the second quarter, the economy grew by 0.5 percent. However, the EC is predicting a slight decline of 0.1 percent for 2013 as a whole. With growth of 0.9 percent, the French economy is expected to completely come out of recession next year. The French government must not rest on its laurels at this positive outlook. In order to achieve long-term economic growth, the forthcoming reforms must be tackled head-on, especially with regard to pensions, and the high level of unemployment must be reduced considerably.

Poland has overcome the period of slight economic weakness it experienced last year. According to the EC, quarter-on-quarter GDP growth was 0.2 percent in Q1 and 0.4 percent in Q2. When comparing the figures with the same quarters of the previous year, the increase is even 0.7 percent and 1.1 percent respectively. Polish consumers are expecting the economy to continue its recovery in the coming months. Although the economic expectations indicator is still unmistakably negative at -9 points, it is clearly on an upward trend.

The Portuguese economy is only just beginning to show slight signs of revival. Experts are still forecasting a drop of 2.3 percent in economic performance for 2013 as a whole. Growth next year is also only predicted to be 0.6 percent. However, in the second quarter of 2013, GDP improved by 1.1 percent on the previous quarter. This outlook is raising the hope of consumers. In September, the economic expectations indicator was -29.5 points, which is the highest value since April 2010. The indicator is now up 35 points from its lowest point in September 2011. This improved sentiment is principally attributable to tourism, which has picked up significantly this year. In the first half of the year, the number of hotel guests increased by 3.5 percent on the first six months of 2012. The number of overnight stays even rose by 5.4 percent. Portugal is currently above all benefiting from its image as a safe vacation destination as opposed to the North African region, which has been facing unrest.

Income expectations: consumers do not expect income to drop further

The income expectations indicator also improved considerably in almost all countries. It stagnated at an extremely high level in Germany and an extremely low level in Greece. Only in the Netherlands have income expectations fallen over the last three months. The lowest values were recorded in Greece (-46.8 points), the Netherlands (-42.7 points) and France (-42.1 points). The indicator was highest in Germany (33.7 points), the Czech Republic (16.5 points) and Austria (15.1 points).

The economic outlook has improved in Italy over the past few months. Although companies are not out of the woods yet and unemployment remains high, hope is building among consumers, not least because of the current economic recovery plan. Through this, the government intends to improve the railway network, renovate schools and repair bridges and tunnels. In addition, borrowing of a further €10 billion is planned to settle previously unpaid invoices of domestic companies. While Italians do not expect income to increase in real terms, they are confident that it will remain the same and crucially not fall further. As a result, the income expectations indicator rose markedly to -16.9 points, its highest value since December 2010.

Following the first economic recovery in Spain for many months, citizens are now at least not expecting their incomes to fall further. The economy is currently on the right track. A return to slight growth is even expected for the second half of the year. Tax increases and salary cuts are not planned for the coming months. The income expectations indicator is currently at -11.8 points. It has risen quite some way from its historically low value of -62.4 points in August last year, rising by around 22 points in the last five months alone.

The economy in the Czech Republic successfully managed to reverse the trend in the second quarter. Although GDP fell a further 1.2 percent year-on-year, an increase of 0.6 percent was achieved in comparison with the first quarter of this year. According to Czech statistics, unemployment has also fallen considerably over the past few months and the European Commission puts it at 6.9 percent at present. In view of the general recovery evidently setting in throughout Europe, especially Germany, consumers are confident that their economic situation will improve further, and consequently also their income. The income expectations indicator has risen by around 16 points since the start of the year. It now stands at 16.5 points, which is its highest value since November 2009.

While Slovakia was one of the countries with the strongest growth in Europe last year, in the second quarter this year, GDP only grew by 0.3 percent on the first quarter of 2013 and 0.8 percent on the same quarter of last year. The situation on the labor market can be described as critical. Despite the economic growth, unemployment increased last year. At present, it is 14 percent. This is the highest value in Central and Eastern Europe. Experts predict that a significant decline will only start in 2015. Consumers have clearly not given up hope that the economy, and consequently also the labor market, will recover in the foreseeable future. This is also reflected in the income expectations. Although still above zero, the indicator level has stagnated over the course of the year and is currently at 8.2 points.

Willingness to buy: more positive economic data benefits consumption

Given that both economic and income expectations have risen quite markedly throughout Europe, it is not surprising that the picture is also more positive for willingness to buy than in the first half of the year. The indicator has stagnated in Austria, the Czech Republic, France, Greece, Portugal and Romania. All other countries recorded quite substantial increases in some areas. The lowest values were in the Czech Republic (-25.8 points), France (-36.6 points) and Portugal (-42.2 points). The indicator values were highest in Germany (45.0 points), Bulgaria (15.2 points) and Austria (11.8 points).

At 45 points, willingness to buy in Germany is the highest it has been since December 2006. This is attributable to the favorable overall economic framework conditions. The economy has recovered from the slight recession at the end of 2012 and beginning of 2013. Unemployment is low and incomes are rising. Added to this are historically low interest rates, which are not inspiring Germans to put their money in the bank but instead to spend on higher value consumer goods or invest in home renovations.

In July, willingness to buy in Austria dropped to its lowest level since April 2009 in the wake of the Hypo Alpe-Adria-Bank International AG crisis and the impending insolvency of Dayli and Niedermeyer, which resulted in increased unemployment. However, the indicator recovered over the summer because of good general economic conditions and is now at 11.7 points. The economy has recovered from the financial crisis and most recently recorded quarter-on-quarter growth of 0.2 percent. Despite the recent increase, Austria’s unemployment rate is still the lowest value in Europe.

The economy in the Netherlands is in recession. According to Eurostat, unemployment is rising and is now at 7 percent. This poor economic situation is primarily attributable to the collapse of the real estate market. Over the past year, house prices have fallen by around 30 percent. The mortgage debts of many Dutch nationals are now almost twice as high as the actual value of properties. This is the main reason why consumers are cutting back spending on all but the essentials. The willingness to buy indicator reflects this, and is currently at -21.8 points.

Although the Greek economy is continuing to shrink, increasingly there are signs that it is slowly starting to get back on its feet again. The prediction for recession at year-end is -4 percent compared with -6.4 percent at the end of 2012. For the first time in ten years, there will be a small primary surplus in the state budget. It is possible that the recession will be overcome next year (forecast +0.6 percent). Tourism is currently playing a major part in this recovery. One in five Greeks have a job in this industry. This development is also echoed in consumers’ willingness to buy, which is currently at -25.1 points. However, the indicator once again saw a sharp drop in August, falling to -43 points. This is likely to have resulted from the then-imminent redundancy of 4,000 public servants and the new round of inspections by the troika.

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