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

 

Spain: government announces measures to revive the economy



The Spanish economy continues to be deep in recession. Although the country is making great savings, it is steadily losing economic power as a result. It is estimated that the fall in Spain’s GDP in the first quarter of 2013 will be similar to that in the last quarter of 2012, at -0.6 percent, and that it will drop further in the coming months. As a result of the poor economic situation, Spain once again failed to meet its budget target for 2012. The EU approved the new deficit goal of 6.3 percent of GDP for Spain, but it actually reached 6.7 percent. This problem is not only affecting the government, because private households are also struggling with high debt burdens. Given the high level of unemployment of more than 26 percent at present, this is not likely to change in the short term.


Over the past few weeks, Spaniards have staged protests against the austerity measures taken by Mariano Rajoy’s government, wich responded by announcing a series of measures aimed at combatting unemployment and reviving the economy. Small companies will benefit from tax relief and it will be easier for companies in general to obtain loans. Part-time working for young people will be promoted through concessions on social security contributions. The government also intends to implement a comprehensive program to combat corruption. The finances of political parties will be regulated by a new law and subject to more stringent controls. Furthermore, corruption offences will be punished much more severely and the judicial procedure for them will be shortened considerably.



Economic expectations:  -32.0 points
Income expectations:     -32.5 points
Willingness to buy:        -24.0 points

United Kingdom: struggling with double-dip recession



The United Kingdom is continuing to struggle with the poor economic situation in the country. Growth is above all being hampered by weak exports, which dropped by 1.5 percent in the fourth quarter of 2012. Companies are investing less, but so far consumers have been shoring up the economy to some extent. Consumption of private households and the public sector increased slightly at the end of last year. In the final quarter of 2012, the economy contracted by 0.3 percent. There was little improvement in the figures in the first quarter of 2013. The UK is therefore once again battling recession. With the exception of the third quarter of 2012, the UK economy has been suffering from a downturn since the end of 2011. In view of the poor economic performance and high level of debt, Moody’s rating agency has now stripped the UK of its top credit rating and downgraded the country and the Bank of England by one notch to Aa1. The overall debt level of the UK is now more than 93 percent of GDP. So far, the government’s major cost-cutting program has not been having an impact. The extraordinarily expansionary monetary policy assumed by the Bank of England has also not been able to change this fact.

Economic expectations:     -21.8 points
Income expectations:        -18.3 points
Willingness to buy:          -35.6 points


France: battle against economic slump and unemployment



The economic crisis in France is escalating. No growth, no jobs. And the French fear the situation is only going to deteriorate further. The European Commission has made a further downward adjustment to its already poor growth and deficit forecast. For 2013, it is now only anticipating economic growth of 0.1 percent. The budget deficit will be 3.6 percent. The French government will therefore fall 0.6 percentage points short of its target. It had pledged to remain below the deficit limit of 3.0 percent under the Maastricht Treaty this year. The labor market is also increasingly putting a strain on the government. Unemployment has now risen for 21 consecutive months and is currently at around 11 percent. Young people under 25 are particularly struggling to find a job, and more than one in four have so far not been successful. The government is under enormous pressure to reform the labor market as quickly and comprehensively as possible.



Economic expectations:     -41.6 points
Income expectations:        -57.9 points
Willingness to buy:           -36.2 points

 

 


Italy: citizens object to stringent austerity plan



Italy is a divided country at the moment. Following the recent election, this is not only true in political terms, but also in relation to the economy. Companies in the North are playing in the same league as their German and Northern European competitors. However, the South is battling against the same problems as Greece and is falling further and further behind. Italy is seen as the key country to the euro crisis. It has accumulated debt of more than €2 trillion, which is 130 percent of annual economic output. Youth unemployment is in excess of 30 percent. The economy has been trapped in recession for around 18 months. Many business owners hope the structural reforms launched by Mario Monti will be continued.
However, Italian economic experts do not regard the recession as purely a product of the current crisis. In reality, the appeal of investing and manufacturing in Italy has steadily fallen over the past decade. Mario Monti has introduced many reforms during his short term of around one and a half years as Prime Minister. He pushed through an austerity package, initiated pension and labor market reforms and intensified efforts to fight tax evasion. He introduced a real estate tax and set down that VAT would rise from 21 percent to 22 percent in the middle of 2013. Although these reforms improved his popularity with other European countries and the European Commission, they had the opposite effect among the Italian population. The recent election result, the political stalemate between parties and the prospective new elections are a direct reflection of this. Regardless of which party ultimately forms the new government, the reforms will undoubtedly be called into question again. The deep recession alone is likely to put a stop to austerity and reforms for the time being. Italians also made it very clear during the recent election that they are no longer willing to accept the severe austerity program.



Economic expectations:     -35.2 points
Income expectations:        -51.0 points
Willingness to buy:           -44.4 points



Portugal: protest against austerity policy



Portugal continues to be deep in a crisis. The country is currently experiencing its worst recession in 37 years. The International Monetary Fund calculated savings potential of €4 billion for the highly indebted country. In line with this, Portugal must dismiss more officials and make further cutbacks to annuities and pensions. As part of these changes, the government has announced new tax increases, the most extensive to date. However, opponents are increasingly doubtful of whether this will ever successfully reduce the debt burden. The principal cause of the severe recession is now the complete collapse in private consumption which is not compensated by the level of exports. The population is evidently taking a similar view of the situation. With unemployment at 17.6 percent, the third highest rate in Europe after Greece and Spain, the Portuguese population does not currently feel able to make any further sacrifices. They are quite openly expressing this opinion at a number of demonstrations at present. To make things even more difficult, the Constitutional Court has rejected four of the austerity measures of the 2013 budget and is forcing the government to make changes. The measures included cuts in payments to pensioners, as well as a special tax on the unemployment subsidy, and were expected to save more than €1.3 billion, which is almost 1 percent of the GDP. This is forcing the Troika to accept a prolongation of the loan of between 5 and 10 years.



Economic expectations:     -43.4 points
Income expectations:        -50.8 points
Willingness to buy:          -44.7 points

 

 


Greece: unemployment is top problem



This is now the sixth consecutive year in recession for highly indebted Greece. Austerity measures implemented by the government in return for foreign financial aid are holding back the economy. In January, industrial production collapsed by almost 5 percent, which is the greatest fall in four months. The gross domestic product decreased by 6.4 percent last year. The biggest problem continues to be the high level of unemployment, which has now exceeded 26 percent. More than half of those aged under 25 do not have a job. Long-term unemployment is also a matter of concern. More than 60 percent of those without a job in Greece have not worked for over a year, but the monthly unemployment benefit of €200 is only paid out for the first 12 months. As part of the new austerity and reform program, from 2014, unemployment benefits will be paid out for a further 12 months, so extended to two years in total.



Economic expectations:     -36.9 points
Income expectations:        -47.0 points
Willingness to buy:          -30.3 points



Bulgaria: structural reform essential for economic upturn



Brussels has praised Bulgaria’s fiscal discipline at a time of crisis. The national deficit for 2012 was only 0.5 percent of GDP. However, there is still extreme poverty in the country. More than one fifth of the population is living close to the poverty line, which is €120 per month in Bulgaria. Around a third of young people are unemployed. In January, many household budgets did not stretch to cover extremely high electricity bills. As a result, tens of thousands took to the streets in protest. Initially these protests were aimed at low income, excessive electricity costs and the election system. Ultimately, the Finance Minister and the entire Bulgarian government were forced to stand down. New elections are scheduled to take place on 12 May, but the protests are continuing. Primarily organized online, the activists are now voicing their grievances about the entire political system. The government had promised to tackle corruption, develop the infrastructure, deregulate the economy, generate growth and reduce unemployment. In addition, the education system was to be modernized and the pension and healthcare systems were to be reformed. However, these essential structural reforms have still not materialized. It is quite clear that changes need to occur in Bulgaria as the country continues to be the poorest in the EU. The average monthly income of the working population is €400. Living costs are rising. Retired Bulgarians receive pensions of around €100 per month and in order to survive, they often have to rely on produce from their own garden, if they have one.

Economic expectations:     -21.0 points
Income expectations:        -23.4 points
Willingness to buy:            10.9 points



Poland: economic growth slows down



In a European comparison, Poland is still in a relatively good position. At 56 percent of GDP, national debt is among the lowest in Europe. The economy is growing, but the rate is slowing down quite significantly. From 4.5 percent back in 2011, the economy only achieved 2 percent growth last year. For 2013, the European Commission is forecasting growth of only 1.2 percent. However, it is not just the crisis in the eurozone which is causing problems for the country. Poland is reaching the limits of its current economic model. After decades of scarcity under socialism, consumers had high demands. They were able to satisfy these because of the relatively recent major economic upturn, which fueled private consumption to the benefit of small and medium-sized companies. These formed the basis of the economy over the past 20 years. But now the weaknesses of a greatly deregulated social state are starting to become apparent. There is very little state support for the population and this is particularly noticeable in the labor market. There is no functioning system for protection against dismissal and no temporary work, but instead many fixed term contracts. Many working relationships do not have any social security benefits. The result is that unemployment is rising and is currently at more than 10 percent. The rate for youth unemployment is even around twice that.



Economic expectations:     -25.4 points
Income expectations:        -22.1 points
Willingness to buy:           -19.0 points

 



Romania: economic growth and falling unemployment



Although economic growth last year was only 0.3 percent, economic experts predict an increase of 0.7 percent to 1 percent for the first quarter of 2013. For this year as a whole, the European Commission is forecasting growth of 1.6 percent. Unemployment already dropped quite markedly over the course of last year. In January 2012, the rate was 7.4 percent, but it had fallen to 6.7 percent by February this year. Only youth unemployment remains at a high level of around 23 percent. However, inflation could become a problem over the next few months. According to the European Commission, it is currently 3.8 percent, but experts are anticipating an increase to 4.6 percent this year. Food prices, in particular, will be driving prices upwards in the first half of the year. Energy prices are also set to rise further over the coming months and years as a result of deregulation on the energy market.



Economic expectations:   -13.6 points
Income expectations:        -5.4 points
Willingness to buy:         -18.3 points



Czech Republic: globalization causing uncertainty among older generation



The Czech Republic suffered a year of recession in 2012. Economic output dropped by 1.3 percent overall. The European Commission is forecasting zero growth for the current year. According to EU data, unemployment is constant at a little more than 7 percent. Over the last few weeks and months, the dominating topic has been the election of a new Czech President, with Milos Zeman beating Karel Schwarzenberg in the run-off. The election was not just between two individuals, but between two political persuasions. It is a reflection of the separate spheres in which Czechs currently live. It was therefore also a vote on the self-image prevailing among the population today and what visions they have for the future.



Economic expectations:   -17.5 points
Income expectations:        -3.3 points
Willingness to buy:         -29.6 points



Austria: harsh winter causes unemployment to rise



In Austria, the first quarter of 2013 was dominated by a rise in unemployment. The harsh winter had a particularly severe effect on the construction industry. According to the European Commission, unemployment was 4.8 percent in February. Youth unemployment is also at an extremely high level of 8.9 percent at present. The global recession and the debt crisis in the EU have both had an impact on Austria. At 0.7 percent, economic growth was considerably lower in 2012 than in previous years (2011: 2.7 percent; 2010: 2.1 percent). For the current year, the European Commission is forecasting a rise of 0.7 percent in the GDP. There has, however, been positive development in Austria’s budget deficit, which Statistics Austria puts at 2.5 percent. Back in autumn the government had still been assuming a deficit of 3.1 percent. This improvement is primarily attributable to the strict budgetary discipline of the republic and its states.



Economic expectations:     0.6 points
Income expectations:        7.6 points
Willingness to buy:         18.2 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 ind

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GFK ROMANIA-INSTITUT DE CERCETARE DE PIATA SRL