Findings of the GfK Consumer Climate Europe and USA for the fourth quarter of 2012
Consumers also seem to think it is now feasible that there will be an economic upswing at the end of 2013, possibly even earlier in some countries. In line with this, economic and income expectations increased slightly again in most of Europe, albeit still remaining at an extremely low level. In contrast, willingness to buy dropped in most countries at the end of the year as many consumers are generally suffering the effects of falling income, raised taxes and high unemployment. 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.
2012 was not a good year for Europe. The eurozone slipped back into recession for the first time in three years and a major divide emerged in Europe as a result. While Southern and Eastern Europe battled against in part extremely high unemployment and rising poverty, citizens in Northern countries continued to be in a relatively good position, despite the crisis. This deep rift is also reflected in the latest labor market figures. The unemployment rate, measured according to the international ILO standard, is comparably low in Austria, Luxembourg, Germany and the Netherlands, at between 4.5 percent and 5.6 percent. However, in Spain and Greece a quarter of the population does not have a job. Overall, 18.8 million in the 17 eurozone countries are unemployed. In November, the unemployment rate increased for the fourth time in a row to reach 11.8 percent. The consequences are shocking. As a result of job losses, disposable incomes in periphery countries are falling rapidly. Greeks now have almost a fifth less money than in 2009. The decrease has been 8 percent in Spain and 7 percent in Cyprus. Experts predict that the crisis on the labor market will intensify further still this year, with unemployment rising to around 20 million in the second half of the year. This should, however, be the peak. Data from November already suggests that the downward trend will actually slow down. The rise in unemployment in the eurozone was more sluggish than in the previous two months and experts anticipate a slight decline to 19.6 million unemployed in 2014.
It is, however, essential that the economy in the monetary union gains momentum again. There are initial positive signs that this is already occurring. The Economic Sentiment Index (ESI) shows that the economic mood has improved for the second consecutive time. From November to December, the barometer saw a surprisingly strong increase of 1.3 points to reach 87 points – the highest level for almost half a year. According to economists, the reforms in the crisis countries are beginning to take effect. The economic strength of these regions has dropped markedly over the last five years. In Greece, for example, GDP has decreased by 21 percent since 2008, investments have halved and imports have fallen by a third. This is the worst depression experienced by a western country since the Second World War. The tough measures being taken mean that countries improve their competitiveness, reduce labor costs and improve their export outlook. Economic imbalances lessen as a result. A recovery of competitiveness is above all evident in Greece and Ireland, where labor costs have fallen significantly. Over the last four years, the difference in national balance of activities between Germany, with the highest surplus, and Greece, with the greatest deficit, has almost halved. These first tentative indications that the crisis can be overcome in the next few years are all subject to one condition: the crisis must not escalate again. Crisis countries cannot rest on the laurels of their initial success, but must continue to implement reforms. National budgets must continue to be consolidated in all European Union (EU) countries.
USA: discussion dominated by debt crisis and budget conflict
In the USA, the predominant topics in the fourth quarter were the presidential election and the subsequent economic development of the country as well as the budget conflict which was simmering until the end of the year. A compromise was only reached between the Democrats and Republicans at the eleventh hour. The parties already have to put their heads together again in February. Until then, a compromise is also required for government spending cuts. If Congress does not reach agreement, then the dreaded sequester may take effect, meaning automatic spending cuts of US$ 1.2 billion over the next ten years. The outcome of negotiations so far is that the richest Americans, around 2 percent of the population, have had to pay higher taxes since 1 January 2013. In addition, subsidies for around two million long-term unemployed will continue for another year. The compromise prevents automatic tax increases, which would have affected almost all U.S. citizens. This will by no means eliminate budget problems, but does keep concern at bay for the time being that the world’s largest economy will once again slip into recession. Nevertheless, it will be extremely difficult to reach agreement on the outstanding issues by March. Adding to this is the high level of government debt in the USA. The government urgently needs to cut spending and increase income in order to remain solvent. If the borrowing limit is not raised through a cross-party consensus, there is a risk to the solvency of the USA. This uncertainty is also quite clearly reflected in the current values of the indicators for economic and income expectations as well as willingness to buy.
Economic expectations: Jan. 4.6 points Average: 14.0 points
Income expectations: Jan. 4.7 points Average: 18.7 points
Willingness to buy: Jan. -6 points Average: -5.4 points
Romania: new government plans constitutional amendment
In Romania, the fourth quarter of 2012 was dominated by the upcoming parliamentary elections in December. The incumbent Prime Minister Victor Ponta fought a tough election campaign against rival candidate President Traian Basescu. As polls predicted, Victor Ponta won the election. The greatest project for his government this year is to carry out a constitutional amendment. Only then will it be possible to reform administration in Romania more easily. There is also a great deal of work to do in relation to the economy. Like many other European countries, Romania is currently on the brink of recession. In the third quarter, GDP dropped by 0.5 percent, in comparison with the previous year. However, economists are predicting slight growth of 0.8 percent for 2012 as a whole, and even forecast 2.2 percent for the current year.
Economic expectations: -8.7 points
Income expectations: -7.7 points
Willingness to buy: -24.2 points
Economic expectations: cautious hope for improvement
The low point of the financial crisis appears to have been overcome. Consumers in most European countries seem to share this expert opinion. Although there are still many uncertainties and risks, hope does seem to be gradually spreading throughout Europe that the situation will soon start to pick up again. In most countries in the survey, economic expectations largely remained stable or improved slightly in the final quarter of 2012, albeit at a low level in general. In a comparison, the most positive outlook on the economy is in Romania (-8.7 points), followed by Germany (-17.6 points) and Bulgaria (-20.8 points). The likelihood of economic recovery over the coming months is considered lowest in Spain (-52.6 points). Portuguese consumers are also quite negative in their economic assessment (-50.7 points), as are Greeks (-50.0 points). The indicator values did, however, improve slightly in both countries.
Although Austria is generally in a good economic position, crises in other European countries are increasingly having a negative effect on this export-oriented country. Above all, the extreme consumption restraint of Italian consumers, who are the main buyers of Austria’s products, is impacting the economy. Consumers share this view. They continue to expect poor economic development. However, they too hold hope that the worst of the crisis is behind them, which is reflected by the economic expectations indicator. From -38.7 points in September, the lowest level of the year, it increased to -23.8 points in December.
Although the British government still has much work ahead, the economic situation of the United Kingdom improved as 2012 drew to a close. After a surprisingly strong decrease of -0.9 percent in GDP in the second quarter, GDP improved again marginally in the third quarter by 0.1 percent. Unemployment also decreased and is currently at 4.5percent. These positive developments are also reflected in economic expectations. In November, the indicator increased by around 20 points. This was shortly after the positive Q3 results had been published. For the first time in six months, consumers felt that things were moving upwards again and that an end to the crisis was in sight. However, the situation soon reverted as the effect of these positive figures was not evident in everyday life. As a result, the value quickly dropped again in December by almost 13 points. This development highlights the fragility of the consumer mood in the UK.
Although Germany is still seen as the top country in Europe, the financial crisis has started to have an impact. According to estimates from the German Bundesbank, the German economy will only see minimal growth in 2013 of 0.4 percent, down from 1.6 percent in the summer. For 2012, the bank is expecting overall growth to be 0.7 percent. To avoid redundancies among highly skilled employees, companies will most likely have to implement proven methods such as short-time working once again. German consumers are well aware of this gloomier economic situation. Economic expectations have been negative for many months and the indicator is currently at -17.9 points.
Income expectations: consumers anticipate further austerity measures
As part of slightly improved economic expectations, income expectations of Europeans were also marginally up in the final quarter of 2012. Rising or relatively stable income is anticipated by Germans (21.2 points), Austrians (-3.2 points) and Romanians (-7.7 points). In contrast, considerable decreases are expected by Greeks (-50.1 points), Spaniards (-52.7 points) and Italians (-55.2 points).
Following a period of recovery, income expectations in Portugal plummeted in the third quarter, but they improved again slightly in the fourth quarter. The indicator is currently at -49.7 points. The Troika, comprising the European Commission, European Central Bank and International Monetary Fund, has attested to progress in the country in tackling the crisis and carrying out major reform projects. Despite this, Portugal is still deep in recession. Experts from the central bank predict that positive growth figures for GDP will not emerge before 2014 and expect a contraction of 2 percent in 2013. With unemployment at more than 16 percent, falling income and pensions, as well as rising taxes, consumers do not see any opportunity for an improvement in the economic, and therefore also personal financial situation, anytime soon. Although the indicator recovered slightly over the last three months of 2012, it is still at an extremely low level of -49.7 points.
In the last months of 2012, Romania was largely paralyzed in a political sense as a result of the elections in December. The party of Prime Minister Victor Ponta won an absolute majority in parliament and in the senate. The new government intends to carry out an amendment to the constitution this year to improve the flexibility of the economy and allow reforms to be implemented more effectively. In the wake of the Europe-wide financial crisis, Romania is however also struggling to stimulate economic growth. For 2012, economists are predicting overall GDP growth of 0.8 percent. The European Commission is only forecasting around 2.2percent for the current year, therefore anticipating stagnation rather than growth in the economy. Unemployment is also increasing slightly. All in all, these are not the best prerequisites for Romanian consumers to expect income growth. Given that they still anticipated wages and salaries to rise slightly last summer, as well as positive development in the economy, the indicator value fell again in the fourth quarter. It is now at -7.7 points.
The economic situation of France is increasingly worsening. The quality of products and services has fallen in recent months and years due to a lack of innovation. According to the CESE (Comparative Education Society in Europe) report on the situation of the country, education and schooling are not good enough, the labor market is inflexible and national debt is too high. The country failed to develop and expand promising business sectors. Instead, business needs to be modernized, taxes have to be raised and public spending must be reduced. The first tough austerity measures were already announced at the end of 2012. The French population is slowly becoming aware that things cannot continue as they have in the past. They expect higher taxes and contributions, as well as potential salary reductions, not least because unemployment has increased to 9.9 percent at present. The poor mood is also apparent in income expectations, with the indicator at -47.2 points in December.
Willingness to buy: high unemployment means spending mood is rock bottom
Although economic and income expectations of European consumers have improved slightly over the last few months, they are not yet willing to invest their money in more expensive purchases. This is hardly surprising. In the crisis countries, unemployment is exceptionally high and in some regions still rising. Money is often lacking to pay for just the everyday essentials. As many European countries are battling against recessions, the desire to go shopping is somewhat limited. Germans continue to be the highest spenders, because the labor market is for now still extremely stable. In December, willingness to buy was 20.1 points in Germany. The indicator was also recording a positive figure in Austria (16.7 points) and Bulgaria (5.7 points). In contrast, money was only really available for just the essentials among consumers in Italy (-38.0 points), Portugal (-46.9 points) and the United Kingdom (-47.2 points).
Christmas 2012 was quite possibly the last for many Greekcompanies. As a result of the terrible economic and labor market situation, as well as severe austerity measures, Greeks quite simply do not have any money left to go shopping. Just how much they have had to tighten their belts is apparent from a large-scale comparison study conducted by consultancy firm Deloitte. According to this, spending on Christmas dropped by a further 16 percent year-on-year in 2012. On average, each household had a budget of €407, which was not just for spending on presents, but also included travel and meals over the festive period. Since 2007, private consumption in Greece has plummeted by 18 percent. The retail sector is of course particularly affected by this consumer restraint. Overall, 68,000 shops have closed over the last two and a half years, which is a third of all Greek retailers. From July 2012, Greek consumers were gradually beginning to feel greater hope that the crisis could be overcome in the medium term and that the economic situation would improve. This cautious optimism was reflected in the indicator for willingness to buy. In July, it reached a record low of -56.9 points, by November it had crept up to -25.4 points. However, the prospect of an austere Christmas and another difficult year ahead meant the indicator dropped again. In December it was at -37.4 points.
The Czecheconomy has so far not been able to put an end to recession. According to the Czech statistical office, in a year-on-year comparison, the economy declined by 1.3 percent in the third quarter. This is the third consecutive decrease. For 2012 as a whole, the European Commission is expecting GDP to drop by a total of 1.3 percent. Only in this year does the economy look set to grow again slightly by 0.2 percent. This also has an impact on the labor market. At present, 7.4percentof the working age population does not have a job. In order to put the state budget in order and limit the budget deficit long term, the Czech government launched a number of tax increases at the end of 2012, as well as cutting some tax benefits. VAT was raised to 15 percent and 21 percent, a surtax of 7 percent was introduced for high earners and the tax relief for self-employed and pensioners was cut. The Czech population therefore needs to forcope with reduced income and rising prices. The response to this is logical. Consumers are keeping a tighter hold on their money than before. The willingness to buy indicator was at -30.1 points in December.
About GfK
GfK is one of the world’s largest research companies, with more than 12,000 experts working to discover new insights into the way people live, think and shop, in over 100 markets, every day. GfK is constantly innovating and using the latest technologies and the smartest methodologies to give its clients the clearest understanding of the most important people in the world: their customers. In 2011, GfK’s sales amounted to €1.37 billion.
