Wednesday,
July 02, 2008
Europe Catches America's Economic Cold -
Italy May Escape Worst
The
ANNOTICO Report
The
combination of Italian banks always being parsimonious about handing out loans, and Italians traditionally disliking credit. will be saving
Economy: Confidence Plummets as Europe
Catches
Much
of
Italian banks
were always parsimonious about handing out loans and Italians traditionally
dislike credit. This means
Consumer lending
is now on the rise but
But crunch or no
crunch, Italians are suffering from soaring food and fuel prices, with
consumer spending dropping 2.3% year on year in April. Shoe purchases were down
6.4%, while supermarkets report Italians are
abandoning the Mediterranean diet they made famous for cheaper frozen foods.
The daily
newspaper Corriere della Sera summed it up last week
as "The Italian paradox - fewer debts, greater pessimism".
Italians, it said, now faced the "Syndrome of the fourth week"
as fridges are emptied before payday.
The employers'
group Confindustria believes economic growth will
hover at about 0.1% this year, well below the 0.5% predicted by the government,
and business confidence fell to a three-year low in
June, as
Car crashes are
reportedly decreasing in the capital at the end of each month as car-mad Romans
run out of money to buy petrol, while managers at one low-cost supermarket run
by a charity in Rome's suburbs were surprised to see far more Italian than
immigrant families showing up for cut-price food.
House prices did
rise by about 1.6% in the first six months of the year, the economics institute
Nomisma said, but house sales are set to fall this
year by 5%-6% compared with 2007. Benigno said: "There
is a stability in house prices right now because
both supply and demand have fallen but demand is now set to fall faster,
with prices in the suburbs the first to fall."
The French
pride themselves on having been spared the excesses seen in the
He praised the
responsible behaviour of French banks within a
tightly regulated system but acknowledged there had been an impact due to the
rise in the cost of borrowing, slower growth and a fall in demand among
borrowers.
The housing
market has been hit hard. Sales of new properties have fallen by 28%, according to
government figures. France Info, a national radio station, recently devoted a
day to the property crisis, featuring estate agencies forced to close because
of the collapse in business. The Institut National de
la Statistique et des Etudes
Economiques (Insee) said
this month that tight credit had contributed to a plunge in new construction
work, which in turn had begun to undermine growth. However, unemployment is
7.2% - the lowest for 25 years - and a further drop to 7.1% is forecast by the
end of the year.
"Le pouvoir d'achat" - spending power, or rather the lack of it - has long been a French
preoccupation. President Sarkozy's failure to make
headway, having vowed to do so, is one reason why his popularity has fallen. Insee's latest survey of household confidence suggests that
it is at its lowest level since records began 20 years ago.
The government
has fought back with an ad campaign on TV and the internet that
heralds measures it claims are putting more money in people's pockets.
Happy French families are shown building houses and shopping thanks to tax
breaks. "Month after month, we'll win the battle of purchasing
power," is the slogan. Insee may have something
to say about that.
While its economy
is in a fairly robust state thanks to strong demand for its exports
and a solid manufacturing sector, inflationary pressures are eating
away at consumer confidence in Germany as much as anywhere else in Europe.
Confidence has fallen
to a three-year low, the GfK institute found,
leading analysts to conclude that Germans - prudent consumers at the best of
times - are tightening their belts in preparation for harder times to come.
Inflation, which was about 3% in May, is expected to hit 3.3% this month - the
biggest rise for about 12 years. "Germans are avoiding big
purchases," the GfK stated, halving its forecast
for consumer spending growth this year to 0.5%.
The reasons for
Germans' reluctance to spend are down to petrol and diesel prices, which have
doubled over the past year, and increases in food costs and energy bills, along
with fears of further inflation, the crisis in the financial markets, a strong
euro, and the general worldwide downward trend.
The dark mood has
been compounded by news that
Even though the
economy remains strong, Germans fear that it will not stay that way, amid
widespread worries that the American slowdown and the weak dollar will
certainly have repercussions. A strong euro is not seen as a good opportunity
to go on a cheap shopping spree to
Being one of
the most credit-wary nations in Europe (many Germans do not own a credit card and it has
one of the lowest rates of house ownership on the continent), even Germans
who are not yet affected by rising prices would rather put money aside for a
rainy day.
Elsewhere in central and eastern Europe, where most countries have enjoyed exponential
growth in recent years, it is the property markets that are taking the most
substantial hits.
House prices have
fallen by 10% in
But
After years of
easy living, when growth in
In a bid to
balance the budget, public sector recruitment will be cut by 30% and top
officials' salaries will be frozen. The government was also forced to admit
that unemployment forecasts for next year would be closer to 11% than the 10%
previously expected.
The state surplus
has dropped 80% to 2.77bn (#2.2bn) for the first five months of the year,
against almost 13.6bn in state coffers for the same period of 2007. This has
forced the government to tighten its belt after the downturn in construction
led to a sharp fall in tax revenue. House sales dropped 32% in the first
quarter and construction output fell 8% in 2007, according to Eurostat, the EU statistics body, compared with a fall of
2.9% in the
Up to March, the
value of mortgages issued was some 17bn, against 41.2bn a year before. And the
number of borrowers defaulting on home loans shot up to 1.3% in April - an
eight-year high after 10 consecutive months of rises.
Banks are in a
cut-throat battle to steal each other's clients. Clients at banks with good
credit histories are being targeted with low-interest rate mortgages by rivals
to get them to jump ship.
There is also
grim news from the high street. Inflation is above the eurozone
average: prices rose at a annual rate of 4.6% in May -
a 13-year-high. As the summer sales start, shops are cutting prices by 50% or
more to entice customers. A
With sales
falling, the buzzword in
Across the border
in
Even
The French
government had put the house, set in a half-hectare garden on south
The Irish
economy is on the verge of its first recession since the hard times of the late
1980s, when the republic suffered mass unemployment and emigration. The once burgeoning
building industry, which turned
The drop in the
number of houses built is estimated to provide 1bn less in taxes for the Irish
exchequer, which in turn may have an impact on huge state road, rail and
infrastructure projects under the National Development Plan.
The Economic and
Social Research Institute, a respected
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