Daily Research News Online no. 1547 - Consumer Gloom in Euroland

Consumer Gloom in Euroland

April 10 2002

The fact that consumers feel that retail and service companies have used the introduction of Euro cash currency as a pretext for putting up their prices evidently placed a considerable damper on willingness to buy in the first two months of 2002. This is one of the significant results of a survey on the consumer climate in six EU countries, recently carried out on behalf of the European Commission by GfK.

In Germany alone, the 'buying propensity' index for January this year dropped 28 points, a change of the order of magnitude for one month which GfK has not measured in over ten years, in fact, since monthly surveys began. Indeed, the downward movements of the index based on around 15 measurements in France, Italy and Spain were also unusually sharp.

Many consumers in key European countries evidently hesitated over making major purchases in the first two months of the year. Some of them took the precaution of making their purchases last year in their old currency and this would explain the excellent Christmas trade reported by retailers. One of the reasons for such restraint may well be the suspicion that retailers have taken the opportunity afforded by the new currency to put up their prices.

Although all the evidence from current official statistics is that the introduction of the Euro has not had any significant effect on the rate of inflation, it is assumed that individual consumer perceptions of, for example, higher restaurant prices and the increased cost of some services, do influence their mood. Without doubt, the fact that consumers must get used to a new Euro price structure also plays a significant role.

Conversely, the mood has remained relatively stable in two countries which do not belong to the European currency union. In the UK, the propensity to purchase index was down just three points in January, showing only a slight downward trend and in Denmark, the January trend was even slightly up.

The trend to resist purchasing continued throughout February in Germany, France and Spain. Only in Italy, where the propensity to purchase index dropped by around 16 minus points by comparison to the previous month did February manage to claw its way back up to the November 2001 level (7 minus points). Of course, in Germany, France and Spain it can also be assumed that the extremely sharp downturn in buying propensity is a short term phenomenon and that consumer willingness to buy will rise again during the course of the year.

There are two further economic indicators with a direct influence on buying behaviour, which can have a positive effect on consumer mood:

Firstly the cost of living may develop at a moderate level. Current national rates of inflation should drop still further, instead of rising and this, in turn, will increase the probability of consumer purchasing propensity developing positively. A number of analyses in Germany have shown that moderate price development generally impacts positively on the consumer propensity to purchase.
The second reason is that the vast majority of consumers believe that the economy will develop favourably. Italian consumers are particularly optimistic about development at the moment: the indicator value of 21 points up in February is clearly above the average of zero measured over many years. In the UK, too, the economic climate has enjoyed a marked recovery since reaching its nadir in October 2001. This means that with this indicator, Germany is again in last position, despite the fact that more Germans than in previous months are now assuming that the economic downturn has been stopped, at least for the time being. This applies to French consumers as well: whilst the indicator factor for France was still very negative in autumn last year, it has swung back to the black since February. Only the Spanish are maintaining the downward trend of the previous months and persisting in their negative assessment of economic development.

If the positive assessment of the anticipated economic development continues to stabilise further in Europe, it is likely that the consumer mood and propensity to buy will revive in EU countries.

The results originate from the international 'Consumption and savings climate' survey, which was carried out on behalf of the European Commission in several countries, including Denmark, Germany, France, the UK, Italy and Spain. The basis for the survey are monthly interviews of approximately 2,500 selected representative consumers in Germany, and between 1,000 and 2,000 people in each of the other five countries. The questions included how they assessed the overall economic situation and how they would assess their personal financial situation.

All articles 2006-22 written and edited by Mel Crowther and/or Nick Thomas unless otherwise stated.