European consumer spending to remain flat

25 August 2010

BRUSSELS: Consumer confidence levels are rising in Europe, but analysts predict this positive trend is unlikely to deliver an immediate increase in spending.

The regular barometer of popular perceptions published by the European Commission, covering 16 nations in the Eurozone including Germany, France, Spain and Italy, stood at -117 points in August.

Such a total compared with the corresponding score of -14 points generated in July, equating to the best numbers recorded in over two years.

Across the 27 nations making up the EU as a whole, also incorporating Denmark, Poland, Sweden and the UK, participants returned a rating of -11.4 points in August, measured against -13.8 points in July.

Although these findings seem to suggest growing optimism among shoppers, Martin van Vliet, an economist at ING, argued this would not translate into a similar shift in household expenditure.

"Becoming more confident about the economy is one thing. Opening your purse and increasing spending is another," he said.

"With the improvement in consumer sentiment mainly confined to the frugal 'core' economies, any strengthening in overall euro zone consumer spending over the coming quarters will likely be modest."

More specifically, while Germany, France and the Netherlands are demonstrating reasonable resilience in the face of continuing uncertainty, the opposite is true for Ireland, Portugal, Spain and Greece.

"We suspect that the overall Eurozone figure once again masks considerable divergence between member states," said Van Vliet.

"Ongoing pessimism in the Southern periphery, where aggressive fiscal tightening is squeezing consumers' wallets, is likely to be offset by improving sentiment in [a majority of] the 'core' Eurozone countries."

Sylvain Broyer, chief euro-region economist at the Frankfurt office of Natixis, also gave a downbeat assessment of the current climate.

"With the exception of Germany, where the economic situation is more robust than elsewhere, consumers are still feeling the crisis," he said.

Tullia Bucco, an economist at UniCredit Global Research, further asserted that fears of a "double-dip" recession may be exaggerated, but trading conditions will not harden either.

"Growth momentum is softening and will probably weaken more markedly going forward," said Bucco.

Data sourced from Reuters; additional content by Warc staff