BERLIN: Brand owners will face challenging conditions in France, Germany and the UK going forward, with domestic consumers remaining less willing to spend in the wake of the recession.
While the German economy, the biggest in Europe, expanded by 9% year-on-year in the last quarter, exports essentially drove this process.
"Germany has got to work on its domestic demand," Andrew Bosomworth, head of portfolio management at Pimco, the investment firm, told Bloomberg."Not everybody can export. Somebody has to import."
Overall, German household consumption has climbed by 21% since 1990, mirroring the uptick in disposable income in the same period.
In the US, these figures stand at 71% and 75% respectively.
"Private consumption will remain sluggish because Germany hasn't allowed real disposable income to grow more strongly," said Andreas Scheuerle, an economist at Dekabank.
Elsewhere, the savings ratio in Germany increased from 9.1% in 2000 to 11.4% in 2009, with the combined forces of an ageing population, concerns about unemployment and traditional priorities fuelling this shift.
"We're like the Japanese, we like quality, we buy one good knife," said Thomas Kemmsies, head of fixed income at Nomura Asset Management's Frankfurt office. "It's also not in the German DNA to go out and borrow to consume."
In France, GDP rose by just 0.6% in Q2, but domestic demand leapt by 4.2% as shoppers proved considerably less conservative than in Germany.
SymphonyIRI, the consultancy, reported that expenditure in supermarkets like Carrefour, Casino and Monoprix increased by 1.2% in the first half of 2010, as national brands enhanced their position.
A further improvement of between 1% and 1.5% is forecast for the second half of 2010, indicating a renewed resilience in popular attitudes.
"Shoppers have what we call 'frugal fatigue,'" argued SymphonyIRI's Jacques Dupre. "It's the end of heavy restrictions, the French stop to tighten their belts."
"But people are very reactive to shocks - if in October there are new rounds of layoffs or higher unemployment, it could quickly go much lower. So the recovery is real but relatively fragile."
However, Gilles Moec, an economist at Deutsche Bank, believes efforts by the authorities to rebalance national finances might dampen this development.
"The problem looking ahead is that we are already seeing some weakness in consumer spending before the government has even begun cutting," he said.
"Even if budget consolidation hasn't started yet, it's on everybody's lips and it's having a very negative impact."
In the UK, the government's recently-announced austerity measures cite the need for reduced public spending in almost every area - including advertising.
As such, despite the fact GDP jumped by 1.1% in the last quarter - twice the amount forecast - many analysts and business leaders stated this growth is unlikely to be maintained.
"These are increasingly uncertain times for millions of families across the UK," Andy Clarke, chief executive of supermarket chain Asda, said earlier this week.
"We're shopkeepers not economists but in this age of austerity we know the pennywise will thrive."
Moody's, the ratings agency, has also suggested in a study that fiscal policies adopted by governments in France, Germany and the UK may undermine "an already tepid European recovery."
Indeed, as populations get older the burdens on pensions and healthcare systems will become significantly worse, at a time when the recession has transformed the wider financial landscape.
"The crisis has effectively 'fast-forwarded' history by 15 to 20 years, eroding all the time that was previously available for governments to adjust," Moody's said.
Data sourced from Fortune/Bloomberg/Associated Press; additonal content by Warc staff