Advent of the Euro Cools EU Consumer Climate

10 April 2002

Eurozone consumers are worried that retailers and service companies may have exploited the advent of the new Euro currency to covertly increase prices – so much so that many zipped their wallets tight-shut during the first two months of this year with a concomitant effect on demand.

This is one of the key findings of a European Commission sponsored study (via GfK) of the consumer climate in eight nations – Austria, France, Germany, Greece, Ireland, Italy, The Netherlands and Spain.

The ‘buying propensity’ index for January, based on fifteen different measurement criteria, plummeted by 28 points in Germany alone, a greater change than any recorded by the monthly survey since it started more than ten years ago. Lesser – but still sharp – downward movements were also reported in France, Italy and Spain

Many European consumers held back from major purchases during January and February and it is evidential that some brought forward their buying to December before the new Euro currency was introduced. This would in part account for the excellent pre-Christmas retail trading data.

Whether the reality corresponds with consumer suspicions of retail rip-offs is another matter. The official statistical evidence is to the contrary.

Interestingly, such suspicions were apparently absent in the UK and Denmark, two EU nations that at present remain outside the currency union. In Denmark, January’s ‘propensity to buy’ index was marginally up, while in the UK it dipped by a mere three points.

The purchase-resistant trend continued throughout February in France, Germany and Spain. Only Italy bucked the trend, its index scrabbling back to minus 7 points from January’s minus 16.

The survey adds two riders:

• 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.

The GfK survey is based on monthly interviews of around 2,500 representative consumers in Germany, and between 1,000 and 2,000 people in each of the other five countries. Among a range of questions, they are asked how they assess the overall economic situation and how they would assess their personal financial situation.

Data sourced from: Daily Research News Online; additional content by WARC staff