European financial crisis appears to have bottomed out

Europe is stuck in recession. However, experts believe that the crisis may have reached its lowest point in autumn last year.

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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.

 

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