Findings of the GfK Consumer Climate Europe survey for the first quarter of 2012
In the past few months, EU countries have demonstrated very varied economic data. Citizens of the individual countries evaluate the economic situation in their country and their own personal situation accordingly. These are the findings of the GfK Consumer Climate Europe survey which provides an overview of the development of economic and income expectations and willingness to buy among consumers in Austria, Bulgaria, the Czech Republic, France, Germany, Greece, Italy, Poland, Portugal, Romania, Spain and the UK. These 12 countries account for around 80% of the total population of the 27 EU member states.
At the beginning of 2012, Europe remained in economic and financial crisis. Although the acute danger appears to have been averted by the Greek haircut, the concern remains that EU countries will slip back into recession due to the sustained economic crisis. In this context, it is also a point of discussion whether the rigid austerity measures which are currently being implemented in all EU countries are the right solution. It is certain that Greece, Spain, Portugal and Italy initially have to deal with negative economic data. The strict austerity measures in these countries are hindering investment and preventing citizens from making large purchases. It remains to be seen whether the consolidation of budgets is working and thus providing more money for investment in the medium term. It is certain that almost all of the EU economies will generate a lower economic growth this year than for 2011. European consumers are also reacting in a correspondingly varied manner. While in some countries they consider the economic data and the development of their personal situation in the coming months to be positive, citizens of other countries currently see little hope of an improvement in their situation in the foreseeable future.
The financial markets have become calmer since the Greek haircut, but the crisis is by no means resolved. Alongside Greece, Spain, Portugal and Italy, the United Kingdom, which is not a eurozone member, has started to become the focus in the past few weeks. Two ratings agencies have already threatened to downgrade their top rating in the next few months. The country’s debt mountain is enormous, and unemployment is at a record high.
Shortly after the new, long-term ESM rescue package was agreed, several countries requested an increase in funds of a total of EUR 1 trillion. Recently, both the OECD and France have endorsed these requests. The even higher amount of the rescue package is meant to shield financially weak countries from speculators and calm the financial markets. Whether or not these discussions give consumers more confidence, however, is questionable at the very least.
Economic expectations: France surprises with positive economic data
In accordance with the predicted economic data, economic development in EU countries continues to be viewed very negatively. However, in comparison with the last quarter of 2011, some countries are showing somewhat improved values. With an indicator value of 7.2 points, Germany is the only country which is in the positive. Both in Poland (with -6.2 points) and in France (-10.4 points), consumers are viewing the future more positively in March than they were in the previous month. In both countries, the confidence indicator increased by just less than 20 points as compared with the previous month. The Czechs (on -62.7 points) continue to make the most pessimistic assessment of the prospects for economic growth. In Greece
(-50.8) and Portugal (-40.6 points), the values for economic expectations continue to be negative. However, if you look at the development in the past few months, people there are hoping that the crisis will soon be resolved.
In France, consumers believe that the economy will recover considerably in the next few months. This is shown in the development of the economic expectations indicator. In November of last year it hit a low of -54.1 points. By the end of March, it had improved to -10.4 points. The country had surprisingly good economic data in the past few weeks. Last autumn, experts still assumed that the economy would shrink by 0.1% in the last quarter of 2011 compared to the previous quarter. It actually grew by 0.2%: more than the Germany economy which has until now been very robust. The Government considers that it is on track to achieve the 0.4% growth predicted by Eurostat for this year, since each one of the three main areas of the economy – foreign trade, domestic consumption and investment – made a positive contribution in the last quarter.
In the past year, the economy in Poland has grown strongly – at 4.3% its growth is the strongest among EU countries. The high levels of growth are mostly due to a strong domestic economy, which has improved significantly in terms of both investment and production. These positive figures are also impacting consumer opinions. They assess economic development at -6.2 points: a high which has not been seen since last autumn. In December, the value briefly dropped to -38.3 points.
Citizens in Portugal are still hoping that the Government’s tough austerity measures will pay off in the medium term and that the economy will then grow again. Prime Minister Passos Coelho has implemented austerity measures that were agreed with the Troika in the months before he entered Government. Wages are being lowered in order to make companies more competitive, the State-owned electrical companies have been privatized (and are now controled by Chinese public companies), and there are more privatization plans ahead. Unemployment benefits, overtime payments and severance pay are being cut. However, this path is not risk-free. Portugal’s economy has not grown for seven quarters. For 2012, economists are predicting that the economy will shrink by over 3 percentage points. Unemployment, which is at 15% and is increasing, is a crucial problem. There are hopes that the reforms will make the country internationally competitive again so that the economy will once again grow. And there has been good progress from the export sector in the last months. One example is a positive commercial balance with Japan and also Turkey since many years. This optimism can also be seen in the economic expectations indicator, which is currently at -40.6 points, and which has been showing continual improvement in recent months. The lowest value was -64 points last September.
Income expectations: high petrol and energy prices are unsettling European consumers
Consumers’ assessment of their future disposable income in EU countries is variable. In countries with more positive economic prospects, citizens are also more positive in their assessment of their own economic situation. Germans are the most optimistic Europeans (with 34.3 points). In second and third place, lagging quite significantly behind, are Poland (-14 points) and Austria (-21.2). Consumers in countries crisis-hit Greece (-60.2 points), Italy (-48.4 points) and Portugal (-46.4 points) gave the most negative assessment of their income expectations.
The first quarter of 2012 showed no improvement in income expectations in Bulgaria. The harmonized rate of inflation is currently 2.0%. Petrol is the primary inflator. Prices are at a record high. Consumers are afraid that the prices of electricity, services and transport will also go up and further contribute to inflation. A second issue is unemployment, which is currently around 11%. However, experts are expecting it to increase to up to 19% by the end of the year. This pessimistic outlook is reflected in the income expectations indicator, which has been falling continuously since the end of last year and is currently at -28.9 points.
Six months ago, Spain raised hopes in the EU that it would be able to resolve its crisis on its own. This meant that the disappointment of Spanish citizens and those across the EU as a whole was that much stronger when they country slipped back into recession. This year, experts are predicting negative growth of 1.3%. One of the biggest problems in Spain is unemployment. At the end of last year, it was just under 23%, and it is set to rise to 24% in the course of this year. This shows that 2012 can only be compared with 2009, the year in which the crisis hit its peak. For February, consumers perception regarding unemployment expectations will reach over 31 points, a level not reached even in the first quarter of the 2009 year of crisis. Although the figures are similar to those from three years ago, the situation is currently even more difficult. All layers of the population are affected by unemployment – young people cannot find work, many companies are bankrupt and have to let their employees go. On top of this, a large number of those affected have already exhausted their claim to unemployment benefit. This development is clearly shown in Spaniards’ income expectations. In the first quarter of 2012, the indicator dropped significantly once again and is currently at -29.7 points.
While the economic expectations in Germany have taken considerable losses since the middle of last year, citizens’ optimism about their income development continues to be very high. This is mostly due to companies’ stable economic situation and the extremely positive situation on the employment market. This has led to consumers placing high expectations on the wage negotiators. The employed hope that in the upcoming wage negotiations the increase in wages and salaries will be better than in the past, so that there is still a noticeable increase after inflation. But the new record levels in petrol and diesel prices are not escaping Germans’ attention. Consumers, primarily commuters, see their buying power as being threatened by the high prices. An ever-greater proportion of their disposable income has to be used for energy and petrol nowadays. This development caused the income expectation indicator to drop a little in March, and it is currently at 34.3 points.
Willingness to buy: Brits are anticipating further austerity measures
Austerity measures and the prospect of low economic growth is leading consumers in many European countries to be restrained with their money. Considering this indicator, the Germans are doing the best (38.6 points) followed by the Austrians (26.6 points). In third place is Poland with -3.6 points. Bringing up the rear is the UK (-49.5 points), where citizens are anticipating drastic cuts and tax increases, as well as crisis-hit Greece (-48.5 points) and Portugal (-41.5 points).
Overall, the willingness to buy indicator in Austria has remained relatively constant at a good level at the beginning of this year. The indicator had to take into account significant losses since November of last year, but is currently rising again. The measures on consolidation and taxation taken by the Government in Vienna, which have been a constant topic in the press recently, have evidently made Austrian consumers uneasy. In November, the indicator was still at its highest level of 40.1 points, but dropped to 21.3 points in February. It has now recovered somewhat to 26.6 points.
In the United Kingdom, unemployment continues to be the dominant theme. At 8.4%, unemployment is at the same level as it was in 1995. In addition, the British Government recently had to admit that it would need two years longer than initially planned to meet its fiscal targets. The reasons for this are the weakening domestic economy in Britain and a lower demand from the eurozone. In order to meet the goal of reducing the annual deficit to 0%, further reforms will probably be necessary. Brits are being very realistic in their assessment of this situation, and are not anticipating having the money to make major purchases in the next few months. After having briefly increased from December to January by around 15 points to -38.3 points, the willingness to buy has since dropped continuously. It is currently at -49.5 points.
In the past year, Poland has been battling high unemployment and high levels of inflation. Despite the economy performing better, unemployment in December was still at 12.5%. However, the Poles are hoping for a marked improvement in the employment market in the coming weeks and months. Average inflation last year was 4.3%, at the end of the year it even reached 4.6%. In order to get this under control, the Polish Central Bank raised the base rate in both of the first two quarters of 2011 by 0.25% each quarter. Combined with a global economy which is getting weaker, these measures are slow to have an effect. According to predictions by the European Commission, inflation will be around 3.5% this year. This development gives Poles a somewhat less pessimistic outlook for the future, which is also having an effect on their spending. They are once again willing to make significant purchases. Although the indicator for willingness to buy was at its lowest level of -18.8 points in January 2012, it recovered to -3.6 points at the end of March.
The findings are taken from the "GfK Consumer Climate MAXX survey", which is based on consumer interviews conducted in all European Union countries each month on behalf of the European Commission. The GfK Consumer Climate Europe gives an overview of the development of economic and income expectations and the willingness to buy of consumers in Austria, Bulgaria, the Czech Republic, France, Germany, Greece, Italy, Poland, Portugal, Romania, Spain and the United Kingdom. These 12 countries account for around 80% of the total population of the 27 EU member states.
The monthly interviews are distributed as follows among the countries
Czech Republic 1,000
United Kingdom 2,000
The table below provides an overview of the individual indicators:
This index is based on the following question to consumers: "How do you think the general economic situation will develop in the next 12 months?” (improve considerably – improve somewhat – remain approximately the same – deteriorate somewhat – deteriorate considerably – don’t know)
This index is based on the following question to consumers: "How do you think the financial situation of your household will develop in the next 12 months?” (improve considerably – improve somewhat – remain approximately the same – deteriorate somewhat – deteriorate considerably – don’t know)
Consumption and buying willingness
This index is based on the following question to consumers: "Do you think it is advisable to make major purchases at the moment?” (Yes, it’s a good time to do so – now is neither a particularly good nor a particularly bad time - no, it is a bad time to do so – don’t know)