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European Economic Crisis

In Europe, hope spreads as worst of the economic crisis is over

In Europe, hope spreads as worst of the economic crisis is over
Photo by Nelson Alcantara

By Nelson Alcantara, eTN editor-in-chief | Oct 30, 2013

All across Europe, hope that the worst of the crisis has been overcome is spreading and that the economy is gradually beginning to recover, Balkans Business News has reported. Citing the findings of the GfK Consumer Climate Europe survey, Balkans Business News said 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.

The GfK Consumer Climate Europe survey provides an overview of the development of economic and income expectations as well as willingness to buy among consumers in 14 European countries. It has found that 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 part. The Italian and Spanish economies also seem to have recovered slightly, although they are still shrinking. In France, the foreign trade deficit melted away and in Greece, it even managed to move into positive territory. In Portugal, the number of unemployed declined again for the first time in two years.”

According to the GfK survey, there are a number of reasons for this recovery in Europe. “Exporters are benefiting from modest global growth. In some countries, consumers are 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.”

The EU registered its first marginal decline in the overall number of unemployed last summer, GfK survey revealed. “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 expected that even more people will again become unemployed in the coming year. Only in 2015 is a significant fall expected. 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, the GfK survey found. “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.”

The good news is 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, growth in the economy is expected in the United Kingdom (19.2 points), Germany (10.7 points) and Austria (6.7 points).”

As far as income expectations are concerned, the GfK survey has found that European 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).”

On the consumer spending index or “willingness to buy,” the Gfk survey found 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 in part quite substantial increases. 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).”

Below is the GfK survey findings per country breakdown, as reported by Balkans Business News:

Romania
Reforms are needed in Romania 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.”

Balkans Business News, however, added that 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 further 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.”

United Kingdom
“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 first and foremost based on private consumption, and then 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.”

France
For 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
Poland has overcome its period of slight economic weakness 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.

Portugal
“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 its 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.”

Italy
“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, the highest value since December 2010.”

Spain
“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. The indicator has risen by around 22 points in the last five months alone.”

Czech Republic
“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 national data 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.”

Slovakia
“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. The indicator is currently at 8.2 points.”

Germany
At 45 points in the willingness to buy index, 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 and 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.”

Austria
“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 Netherlands
“The economy in the Netherlands is in recession. According to Eurostat, unemployment is rising and is now 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.”

Greece
“Although the Greek economy is continuing to shrink, increasingly there are signs that the economy is slowly starting to get back on its feet again. The prediction for recession end of year is -4 percent versus -6.4 percent at 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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