European Consumer Confidence Falls

Despite the Air of Positivity at Davos, European Consumer Confidence Takes a Dip, with 73% Not Seeing the Economic Outlook Improving in 2014, Says New AlixPartners Survey
Consumers on both sides of the Atlantic plan to reduce spending as trust in governments to remedy economic woes ebbs to 10% of surveyed.
As the dust from this year’s World Economic Forum in Davos settles on a note of increased economic optimism amongst business and governing elites, a new survey from AlixPartners, the global business advisory firm, has found that confidence of consumers across the Western world in the economic outlook for 2014 is flagging, especially in Europe where 73% of people questioned saw the economy stagnating or deteriorating over the next 12 months. The results of the AlixPartners U.S. and European Economic Outlook, which polled a representative selection of more than 6,000 adults in six countries (the US, the UK, Germany, France, Italy and Spain), point to a marked chill in consumer sentiment, with many making new year’s resolutions to cut back on non-essential spending. AlixPartners’ research also indicates worryingly high levels of disaffection in elected officials and their capacity to repair the damaged economic fabric.
Although the air at the World Economic Forum 2014 was heavy with the renewed economic optimism of global elites, the perspective of the everyday consumer provides a striking contrast to this. Indicative of their prevailing lack of optimism, 63% of all surveyed claimed that they felt either “not good” or “bad” about the economic situation of their country. Compared to a similar AlixPartners survey taken right in the aftermath of the financial crisis in 2010, the number of European consumers holding a generally negative view of their own country’s economy has crept up by two percentage points, to 66%, while in the US, although an increasing number described themselves as merely neutral in this respect, pessimism remains the dominant trend. When reflecting back on 2013, 42% of Europeans polled said they feel that the economy got worse, and, furthermore, nearly three quarters do not expect this calendar year to bring an upturn: 73% predict that in 2014 the economy will either stay the same or get worse. And even beyond this, a large majority, some 83%, do not see an economic recovery on the horizon until 2016 or later. While the delegates at Davos put the theme of income inequality high on the convention agenda this year, AlixPartners’ survey shows an upsurge in concern about individuals’ personal economic situations.
“This survey suggests that everyday citizens, who control around 70% of spending in Western economies, are in not in the buoyant mood to act as the engine of growth that business so badly needs right now,” said Fred Crawford, CEO of AlixPartners. “The ‘citizen consumer’ has perhaps an even gloomier outlook than many would have been led to expect – which could mean continued challenges for businesses across many sectors going forward. While there may be reasons for a modicum of optimism today, there also appears good reason to believe that the Western world will be stuck in a low-growth mode for some time to come.”
Stalling confidence is particularly acute in Europe, where 42% of people said that they were “very” or “extremely concerned” about their personal economic situation, up from 35% in 2010. The US, however, showed a slight improvement for the better, with 33% feeling more positive about their personal financial situation compared to 28% to 2010. Consequently, consumers seem to be anticipating reining back their net levels of spending in 2014: taken globally, survey respondents said they would look to cut back in all categories of expenditure, with the exceptions of groceries and most notably housing, which is set to increase.
Within Europe, local differences became apparent, with consumers in Germany showing slightly more confidence and taking a moderately more liberal attitude to personal spending compared to their Southern European neighbors. Whereas Spanish, Italian and French consumers expected to reduce personal spending across the board and spend over 20% less on areas such as entertainment, leisure activities and vehicles, German consumers were content to commit to relatively small reductions of around 5% on many categories and actually planned to marginally increase spending on groceries, housing and travel.
While preoccupied with the perceived sluggishness of their economies and the knock-on effect on their personal situations, consumers across both continents seem to lack confidence in the ability of elected officials to effectively improve the economy through their actions and policies. According to the survey results, only 9% of Americans and 10% of Europeans polled claimed to be “somewhat” or “extremely” confident in the ability of elected governments to effectively improve the local economy in the long-term. Within the euro-zone countries surveyed, this skepticism was particularly marked in countries having recently experienced recession or persistently low growth levels, such as France (with 7% showing confidence) and Italy (at 6%), whereas their northern neighbor Germany was the least affected by this phenomenon among the surveyed European countries, with 19% holding some degree of confidence in their government to improve matters economically.
“Government and business are, of course, interdependent,” said Stefano Aversa, Co-President and Head of Europe at AlixPartners. “And while there are examples today where policy coordination and business execution appear to be working quite well, such as in certain sectors of the German economy, that’s not the case in general – and until that changes, American and European consumers are likely to remain stuck in their foxholes.”
“But businesses, of course, can’t afford to wait. In our work at AlixPartners, we see companies expanding even in today’s low-growth environment. They’re creating value by pulling on key levers available to them, including advanced product - and pricing-profitability techniques, targeted data analytics, flexible and responsive supply-chain strategies and, of course, talent acquisition and development. In today’s low-growth world, no stone can be left unturned in the search for value.”