Hope of an end to European crisis

NUREMBERG, GERMANY: Hope is spreading throughout Europe that the worst of the crisis has been overcome and that the economy is gradually beginning to recover.

(Image: J.-H. Janßen, via Wikimedia Commons)

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% 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%. A true trend reversal on the labour 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. Moreover, 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.

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% in the second quarter. By the end of the year as a whole, experts are predicting an increase of 1.5%. 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 favourable 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 stabilise. In the second quarter, the economy grew by 0.5%. However, the EC is predicting a slight decline of 0.1% for 2013 as a whole. With growth of 0.9%, the French economy is expected to come out of recession completely 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% in Q1 and 0.4% in Q2. When comparing the figures with the same quarters of the previous year, the increase is even 0.7% and 1.1% 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% in economic performance for 2013 as a whole. Growth next year is also only predicted to be 0.6%. However, in the second quarter of 2013, GDP improved by 1.1% 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% on the first six months of 2012. The number of overnight stays even rose by 5.4%. 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.