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Wednesday, 28 March 2012

Is the credit crisis a depression in disguise in Europe?! Looking at consumer confidence in the strongest EU countries over the last eight years, I would say ‘yes, it is’!

In 2012, the credit crisis has gone in its fourth year. This year 2012 has been a year of extremely mixed signals in Europe and the US until now:
  • The stock exchanges, although now going through two poor weeks, have been floating with ‘lots of happy, happy feelings’ during this year;
  • The social networks and Apple showed superlative market capitalisation and (in case of the latter) superlative profit growth;
  • The Chinese dream seems to be at the brink of turning into a Japanese nightmare;
  • The financial markets had slept on their credit sleeping pills, but seem to be fully awake again, which predicts a very grim financial future for Spain, Portugal, Italy and perhaps The Netherlands; 
However, only one group is the main variable in every economic equasion; in every country in Europe and the world. It is impossible that any economy will get into a sustainable, secular bull market if this group waves the white flag in the end: the consumers.

The elites can invest their money. The managers can spend their well-deserved (?) bonuses in luxury shops all over the country. The central banks can execute quantitative easing until every citizen is a millionaire. And the government can spend trillions of dollars and euro’s in Keynesian stimulus. But if the consumers let us down, there will not be a long-lasting bull market. Period!

Therefore I went to the wonderful Eurostat online database ( and selected the consumer and retail confidence over the last eight years from the strongest countries in the European Union (in GDP per country): Germany, France, The United Kingdom, Italy, Spain and The Netherlands. I took this data and present it here in six charts, per country (all data courtesy of Eurostat). 

In this way I hope to read the minds of the consumers in these leading European countries; not only about what they say (i.e. consumer confidence), but also about what they do (i.e. retailer confidence).:

Germany: Consumer and Retail confidence 2004 - 2012
Data courtesy of: Eurostat
Click to enlarge

Spain: Consumer and Retail confidence 2004 - 2012
Data courtesy of: Eurostat
Click to enlarge

The Netherlands: Consumer and Retail confidence 2004 - 2012
Data courtesy of: Eurostat
Click to enlarge
Germany, Spain and The Netherlands all have a very strong correlation between the retailers confidence and consumers confidence. This means that improving consumer confidence in these countries leads almost immediately to increased spending and declining consumer mood – although strongly exaggerated in Spain and The Netherlands – leads to reduced spending.

I use the retailers confidence here as a reflection of the spending behavior of consumers: consumers that don’t spend cause negative feelings among retailers and the other way around.

Germany is a special case here, due to (in my opinion) the wage restraint program of the early 2000’s that had been introduced by chancellor Gerhard Schröder. In the first half of the decade the consumers have been in a very good mood, but this was not very strongly reflected  in their spending behavior. The deteriorating consumer mood, however,  is immediately followed (or even front-run) by the deteriorating retailer mood. Only since 2008, when Germany turned from the ‘ugly duckling’ into the golden child of Europe, the retailer spendings have been following the increased consumer mood, albeit for a very short time.

What these pictures also show is the speed at which the consumer mood and retail spendings have been deteriorating since 2010. The positive consumer mood in Germany and The Netherlands has been present for a very short period, while the consumer mood has been stably negative over the last few years. While you could argue if Germany and The Netherlands are in a depression, with Spain there is no doubt about it.

United Kingdom: Consumer and Retail confidence 2004 - 2012
Data courtesy of: Eurostat
Click to enlarge

France: Consumer and Retail confidence 2004 - 2012
Data courtesy of: Eurostat
Click to enlarge

Italy: Consumer and Retail confidence 2004 - 2012
Data courtesy of: Eurostat
Click to enlarge
The United Kingdom, France and Italy are countries where the correlation between consumer confidence and consumer spending is much weaker.

While the consumer confidence in Great Britain has been stably negative over the last eight years, with a mild drop in 2009 and a mild recovery in 2010, the spending behavior of the Britons (i.e. retailer confidence) could be best described as ‘manic depressive’, with enormous positive and negative swings. However, if you judge the UK by its consumers, the country already feels depressed since 2004 and there is no signal that this will change soon, in spite of its erratic spending behavior.

France and Italy are both countries where consumer confidence has been extremely negative over the last eight years, but where these negative feelings are only mildly reflected in consumer spending. I think this is caused by the cultural circumstance that things concerning fashion, like clothing and accessories are extremely important in France and Italy.

At the risk of generalizing, you could say that the average Italian and French every year need their new handbag, sunglasses or clothes, regardless of the direction of their mood. This probably explains the success of French and Italian luxury brands, like Chanel, Louis Vuitton, Gucci and Hermés. If the French and Italians don’t have money for it, they make money for it.

However, also these countries feel depressed already for a very long time. And the recovery of 2010 was not sufficient to take these feelings away.

So are we in a depression? Looking at the consumer data in these leading European countries, this is a definite yes!

And I must come to the conclusion that this is the result of the ever-increasing gap between the high and modal incomes. While the modal incomes have effectively been lowered of the last twelve years, in combination with soaring personal indebtedness, the higher incomes exploded. 

You can’t see this loose from the victory of (neo-liberal) Anglo-Saxon capitalism over communism and social-democratism in the early nineties. This victory came in combination with soaring individualism and a decreasing influence of the labor unions. This has been negative for the wage development in the western countries, as individuals are a much easier target in negotiations than strongly united citizens. 

The leading European countries and (probably) also the US are worn out from the inside until the last modal consumer falls down.

So forget quantitative easing, the ‘two brain-cellers with the pink glasses at the stock exchanges’ (thank you, Kees de Kort of Dutch BNR Radio), the rich and famous and the bonus boys. As in the end, the consumer decides and the consumer counts. The consumer that now seems to be grasping for air.

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