Economic outlook: mixed feelings in Europe

July 2017

Summer time, vacation time! Finally we have arrived at what is, for most people, the best part of the year. Across Europe, the summer break has either already begun or is not far away. However, there are some conditions which have to be met before the vacation can be celebrated in earnest. Anyone planning on traveling or even doing nothing for a while must be able to afford it. Going on major vacations is practically unthinkable if you don’t have the necessary funds available and if your economic situation, or that of your country, will not remain stable for some time. How will the domestic economy, and therefore also the labor market, develop? Will individual budgets increase, or at least be stable? Or is there even a threat of falling wages? When it comes to these questions, Europeans are divided, as can be seen from consumer sentiment across various countries: While some still have high hopes, others look to the future with concern.

How will the general economic situation develop in the respective survey countries? There is increasing diversity between the answers of individual countries.

For instance, consumers in France and Germany today are much more optimistic than previously, while those in Portugal also see their domestic economy as heading in the right direction. The situation has stabilized in Spain, and Polish consumers are also optimistic. However, things are very different in the southern European countries of Italy and Greece. These are the findings from the current Consumer Climate Europe, a consumer survey on behalf of the European Commission in which more than 41,000 consumers from a total of 28 countries across Europe are interviewed by companies such as GfK, among others. Incidentally, this chasm between optimistic consumers and skeptics in Europe did not just come into existence upon the outbreak of the Eurozone crisis. Rather, countries’ economic expectations have been increasingly divergent, as in between already was the case in 2014.

Economic expectations: France and Germany are ahead

Above all, the French are of the view that their economy is on sound footing, which may primarily have something to do with the election of the new president. Emmanuel Macron only entered the political stage fairly recently and the party he founded – La République en marche – is only about one year old. In his new position, Macron intends to launch numerous reforms – and this is clearly giving consumers reason to believe that positive economic results will be forthcoming. Economic expectations improved considerably in mid-2017: The index is currently at 49.1 points, which is the highest level for several years. The sentiment indicator has also continued to register a clear increase since 2016 in the neighboring country of Germany, with the value climbing to 41.3 points in June. This is its highest value since mid-2014. Back then, German citizens’ economic expectations were slightly above the current level, at 46.2 points. In actual fact, both countries have seen further economic growth in recent years. According to UNECE (The United Nations Economic Commission for Europe), Germany’s GDP growth rate was 1.9% in 2016, with France’s being slightly lower, at 1.2%.

Economic upswing: Spanish, Portuguese and Polish consumers believe economy is on the right track

Like many other southern European countries, Spain was particularly affected by the European crisis, but it reported positive results as well. In 2016, the GDP growth rate was 3.2% up on the previous year. However, this growth has already moderately influenced consumer sentiment. Economic expectations are gradually stabilizing and recently reached an index rating of 24.9 points. Their Portuguese neighbors are much more hopeful. They anticipate a more noticeable economic recovery and increasingly assess the economic outlook more positively. The indicator increased to almost 40 points in mid-2017. The reforms have clearly had an effect across the country, something which can also be seen in the GDP: Compared with 2015, the value increased by 1.4% year on year. Furthermore, the fact that Portugal recently left the euro bailout fund and was even able to pay back some financial aid ahead of schedule must have had a positive impact. The Polish economy was never reliant on such cash injections during the European crisis, but the effects were felt here too. However, sentiment has steadily improved in Poland as well since 2012. With GDP having increased once again by 2.7% last year, consumers’ economic expectations recovered, with the current value having stabilized at 18.9 points.

The UK, Greece and Italy: bleak prospects

However, not all European consumers are so positive. Weak economic performance is not always the reason for this, as shown by data from the UK. According to UNECE, the UK’s GDP grew by 1.8% in 2016, but consumer sentiment is still pessimistic. Economic expectations, which were previously at an average level, have decreased since 2016 yet again after a short recovery phase. The current value now stands at -20.7 points. Above all, the Brexit vote and the inevitable consequences it will have for people and the economy are likely to have played a role in this outcome. In Italy and Greece, in contrast, an ailing economy has already become reality. Both countries have still not recovered from the Eurozone crisis: In 2016, Greece reported no growth in GDP, whereas the situation is at least slightly better in Italy, where an increase of 0.9 points was recorded. However, neither Greeks nor Italians believe that a positive turnaround is on the horizon for the foreseeable future: Economic expectations in Italy are still in freefall and are currently at -55.5 points. The situation in Greece is not much better, with the value declining to -43.2 points.

Income expectations: Top marks for Germany

The Scottish economist and philosopher Adam Smith once said: “The wider the market, the more wealth there is for everyone.” That may well be, but economic recovery does not immediately translate into consumers actually feeling better off. At least this is the impression we get from comparing Europeans’ income expectations with their economic expectations. Both parameters do not necessarily coincide. Compared with a year ago, French consumers are now far more convinced that their country’s economy will develop well. However, their income expectations have not increased by anywhere near the same degree over the equivalent time period. Nevertheless, at 2.7 points in June 2017, this was the best value for five years and France also did well in comparison with other European countries. In Germany, too, the indicator has risen to a record high level since 2012, but its peak of 60.2 points is far greater than France’s level. Together with the positive economic outlook, German consumers take a much more optimistic view than before in terms of their personal affluence in the future. Economic and income expectations in the UK over the past four years have developed relatively parallel, and both indicators have fallen against the backdrop of Brexit. In June, income expectations declined to -2 points. But even in the past, when there was no sign of Brexit on the horizon, there were still low values for this indicator. The same goes for Italy, where the indicator currently stands at -17.9 points. This value was even lower in 2012 – presumably because the economic crisis was much more noticeable at that time.

Greece: Consumers do not expect more money in their accounts

For over a year now, Portuguese consumers have increasingly expected to see a rise in income – the indicator climbed to 29.5 points, which is the highest value for years. But this increase isn't quite as dramatic as that seen in economic expectations. Clearly, people are assuming that the economy will recover from the effects of the crisis more rapidly than their own bank accounts. As is the case with economic expectations, Spaniards are more pessimistic regarding income expectations than their Portuguese counterparts: The indicator stabilized at 14.1% in the middle of the year. In Poland consumer’s income expectations have dimmed somewhat despite the positive economic outlook. Currently the indicator stands at 25 points – something which Greek consumers can only dream of. Apart from a few outliers, income expectations have been declining perceptibly since 2015 and now stand at -42.9 points. This is similar to the level in 2013.

Labor market gives Germans reason to be cheerful

But how realistic are consumers’ estimations of their own economic future? What raises and dashes their hopes of financial relief? The labor market situation certainly must play a part in this. If the majority of people are able to earn a living this should raise consumer sentiment – and vice versa. This holds true for Germany: Its citizens, who have the highest economic and income expectations in Europe, have enjoyed historically low unemployment rates in recent years, with just 4.1% (Eurostat) in 2016. In Greece too, inhabitants’ assessments of their situation are dependent on labor market conditions. With the lowest value in terms of consumer sentiment, Greek consumers had to deal with an unemployment rate of almost 25%. In Italy, things could start to slowly recover at least, as the BIP has grown slightly. The number of unemployed people in Italy is around half that of Greece. However, consumer sentiment remains quite cautious – probably in light of the refugee crisis.

France and the UK: Political situation influences consumer mood

In contrast, the Spanish population has clearly recovered better from the recession of recent years, despite the fact that unemployment figures are still nothing to shout about. Almost one in every five Spaniards are unemployed. In spite of this, consumer forecasts have stabilized overall. Spaniards seem to expect the positive GDP growth figures to be reflected in their incomes too in the foreseeable future. They share this view with the Spanish government and the EU. Portuguese consumers are even more confident about the future, both economic and income expectations ranked in the top three. This is despite the fact that more than one in every ten inhabitants are unemployed. In France, the Macron effect seems to be helping people to see past modest labor market developments: Despite a still-strained labor situation, the French are optimistic about the future. Polish consumers are not quite so euphoric, but their sentiment has stabilized in light of an extremely low unemployment rate of 6%. In contrast, the shock of Brexit is deeply rooted in the minds of UK consumers: The positive job situation (unemployment rate 4.8%) cannot stop them worrying about the future.

Clearly, good economic development and an upturn in the labor market are not enough to keep consumer sentiment at a sustained high level. Confidence in the future – one’s own future and that of the country as a whole – may be a factor which matters just as much as the bare data. The former German Federal Chancellor Ludwig Erhard must have known this already given that he is said to have claimed: “Economics is 50% psychology.”

Data source: Consumer Climate Europe/ Consumer Survey on behalf of the European Commission

If you have any queries please contact Rolf Bürkl, GfK SE.  Contact person for queries about Compact: Claudia Gaspar. (e-mail to