EUROPEAN OUTLOOK IS BRIGHTER
Byline: James Fallon / Robert Murphy / Melissa Drier / Courtney Colavita
MILAN — What a difference a couple of months makes.
America is abuzz with talk of a recession, consumer confidence has plummeted to its lowest level in four years, and the Federal Reserve Bank is scrambling to stem the decline with two interest rate cuts in a month.
But an ocean away, Europeans are actually flirting with optimism about their fiscal health for 2001. Their economies are doing pretty well — retailers across the continent reported slight gains during the holiday season and consumer confidence appears to be holding steady. Employment rates are improving, too, reversing a decade-long trend of high joblessness.
American makers will undoubtedly look to Europe for growth as the U.S. economy sputters and shoppers across the Atlantic begin to open their wallets again, particularly for better and luxury goods.
Still, Europeans are keeping one eye on the U.S. economy, which will inevitably affect their own. Here are snapshots from London, Paris, Milan and Berlin on employment, consumer confidence and spending trends.
As the adage goes, when the U.S. economy sneezes, the U.K. gets a cold. Right now, Britain hopes it won’t get the shivers.
With the American economy heading toward slower growth — or, as some predict, even a recession — British retailers and other businesses are hoping they can beat the past. Ironically, it’s one of the few times the traditionally U.S.-oriented British are insisting their economy is more like continental Europe’s than America’s.
Given the numbers, they appear to be right. British inflation averaged a record low of 2.1 percent last year, with more worries over price deflation than price increases. The U.K. is generating a budget surplus, with tax cuts potentially on the way as the Labour Government heads into an expected general election in May. Gross domestic product averaged about 3 percent last year and is expected to maintain that level into 2001. The European Central Bank is predicting similar growth rates throughout continental Europe. There are concerns, however. Industry executives are pessimistic about the future, and continue to press the Bank of England to follow the U.S. Federal Reserve and cut interest rates. (They’ve been at 6 percent since January 2000.) A recent survey of senior business executives by the polling organization MORI found that only 21 percent expected the economy to improve this year, while 23 percent expected it to worsen. Even the luxury goods sector is concerned.
“What happened in the U.S. in 2000 contributed to Christmas here not being as good as people hoped it would be,” said Gary Ralfe, managing director of the diamond company The De Beers Group.
With unemployment at its lowest ebb in more than 10 years, consumer confidence in France is on the upswing. According to the most recent government statistics, unemployment at the end of November was 9.2 percent. Although still high compared to America, the number of unemployed in France declined 17.2 percent in 2000 alone. Only two years ago, unemployment was soaring above 13 percent. Laurent Fabius, French economy minister, predicted in mid-January that, by the end of 2001, France would create another 400,000 jobs, with the number of jobless in France declining to 2 million by yearend.
Fabius also forecast that the economy would expand about 3 percent this year. Meanwhile, a recent study by personal loans group Cetelem, part of the banking group BNP, reported that French consumers say they plan to spend more in the coming year than during the last one. According to the study, consumption in France is up in most sectors compared with 1999. The study also said that, despite their optimism, consumers are not sure France’s economic recovery will last.
It looks as if Germany’s troubled economy is turning around.
According to figures released by the Federal Office of Statistics last month, Germany’s gross domestic product rose 3.1 percent in 2000, the best result since the boom experienced in the wake of reunification in 1991. The unemployment picture has also improved, dropping to 9.6 percent in 2000 compared to 10.5 percent in 1999. The 2000 figure is the lowest since 1995, and represents the sharpest decline, Labor Minister Walter Riesling noted, since reunification.
Riesling has said he expects the recovery to continue this year. The retail climate also seems to be improving.
“All in all, the consumer climate is far more favorable,” Sigfried Jacobs, managing director of the Association of German Apparel Retailers, commented. “We’re optimistic. The basic economic conditions are good. We expect private consumption to increase.
“The tax reform is coming into effect,” he said, explaining that this would lead to about 1 percent more disposable income. Nevertheless, apparel retailers “probably won’t feel the full benefit of this upswing.”
“As we saw this Christmas, there are areas — such as high tech, communications, computers and computer games — that take priority to the detriment of apparel,” he added.
Jacobs said the Association of German Apparel Retailers is expecting retail growth of about 1 to 2 percent in 2001. Prices, however, are also on the rise. According to official statistics released in January, consumer prices inched up 1.9 percent in 2000, primarily due to higher oil prices and costlier imports, thanks to the weak euro.
With unemployment down and spending on the rise, consumer confidence in Italy is expected to stay strong through the first quarter of 2001, according to Italian government agencies. ISTAT, Italy’s national statistics institute, reported an unemployment rate of 10.6 percent at the end of 2000. Although still one of the highest in Europe, the rate has been improving steadily over the last several years. Just two years ago, unemployment was hovering around 12 percent. Mario Albisinni, a researcher at ISTAT, says more Italians are finding work, thanks to the burgeoning technology and service sectors.
“Internet and telecommunications jobs have really been a source of employment growth for Italy,” said Albisinni. The positive gains in the workforce have helped propel consumer confidence and the country’s gross domestic product. Italy’s GDP rose 2.4 percent from a year ago, making it the highest since late 1998, according to ISTAT. Meanwhile, Italian families are spending 4.2 percent more on clothes, entertainment and food compared to a year ago, according to ISAE, Italy’s national economics institute.
“We’re optimistic about 2001,” said Bianca Maria Martelli, a researcher with ISAE. “There’s more spending, but it’s conservative. It’s not a huge boom, but we expect spending to slowly increase in the upcoming year.”
Martelli added that families are also more apt to save in 2001. But all this could easily change come April, when Italians go to the polls to elect a new president. Martelli says the changing of political control will certainly impact Italy’s economic health.
“There is a highly sensitive relationship between Italian politics and the economy. It’s hard to make predictions, but there’s no doubt the election will influence Italy’s bottom line.”