european economic forecast 2014
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European EconomicForecast 2014
A special report by Dr Alina Elena Iosif
Author Alina Elena Iosif lecturesat the Bucharest Academy of Economic
Studies (BAES) in Entrepreneurship,
Negotiation Techniques and Public
Procurement to Bachelor and Master
students. Alina holds a doctorate in
Business Administration for which her
thesis focused on co-operation between the
business sector and public authorities for
the provision of services of general interest.
During her PhD, she was invited to become
a visiting researcher at the University of
Barcelona, Spain. Her research interests
focus on European policy and regional
development. In 2013, she worked at the
European Commission within the
Directorate General for Regional and Urban
Policy.
03 Introduction
04 Executive summary
05 Future perspectives on Europe
08 2014 perspectives on Western, Northern, Southern and Eastern Europe09 - Real GDP growth
10 - Consumer prices
11 - Current account balance
13 - Total investment, volume
14 - Total population
16 - Total employment
17 - Per capita employee compensation
18 - Unemployment rate
19 Sector analysis20 - Automotive sector
22 - Food/Alcohol
24 - Financial services
26 References
Contents
2
Purpose This report is intended as a valuable support for EACA
members to help them plan their activities for the year ahead. We
have focused on macroeconomic indicators which provide
information about the overall health of the economy, by
synthesizing forecasts generated by recognised international
institutions.
Target audience The paper is aimed at business players who are
interested in being aware of broad market trends and particularly
at senior management of international advertising agencies.
Structure This report contains an analysis of several relevant
macroeconomic indicators at European and regional level
(Western, Northern, Southern and Eastern Europe). It provides a
snapshot of future perspectives on particular relevant sectors for
advertising agencies (automotive, food/alcohol, financial services).
Content The three major pillars of a macroeconomic analysis
consist of national output measured by GDP (gross domestic
European Economic Forecast 2014
3
product), inflation and unemployment. Based on these indicators
the current analysis covers both the overall and regional levels of
the European economy. Finally, several short sector analyses are
carried out in order to identify future trends.
Methodology In preparing this report, we have used some of the
most relevant data and reports published by trusted international
institutions, such as the European Commission, the International
Monetary Fund, the Organisation for Economic Co-operation and
Development, the United Nations and by private companies. Based
on these sources, the macroeconomic and sector analyses have
been developed. A full bibliography is provided at the end of the
report (page 26).
Caveat The projected values are estimated according to current
market performance and predictions and are therefore subject to
potential variation in the coming years.
Introduction
Purpose of the report This report is mainly addressed
to the senior management of international advertising
agencies with an interest in the future business
perspectives of Europe and its regions. The analysis of
macroeconomic indicators in 2014 may be a valuable
support for management considering whether to invest
in a certain market in relation to the stability of the
economy.
Real GDP growth Countries from Northern and Eastern
Europe register the highest real GDP growth values in
2014, meaning that they are expected to be the most
prosperous. Moldova, Russia, Turkey, Kosovo and Latvia
are situated at the top and are expected to have a real
GDP growth of approximately 4%.
Consumer prices In Western European countries, the
annual % change in consumer prices is positioned at a
low level of around 1.5%, followed by Northern and
Southern countries with values between 2-3%. In the
Eastern European countries, rates of around 5% are
estimated. Exceptionally high predictions for consumer
prices in 2014 are represented by Belarus (15.5%) and
Russia (6.2%).
Current account balance Most Western European
countries are expected to have a current account surplus
in both 2013 and 2014. A similar situation is expected in
Northern Europe, apart from some countries already in
deficit, notably the UK with around 4% of GDP. In
Southern and Eastern European countries, current
account deficits are more common and in some cases
may become even more worrying, for example in Kosovo,
Montenegro and Moldova.
Total investment In 2014, total investment in the EU is
expected to increase by 2.5%. Public investment may
remain subdued, while private investment should
rebound, based on higher export growth, low financing
costs, increasing profit margins and gradually fading
uncertainty (European Commission, 2013).
Total population Population growth in most European
countries will be constant in 2014 compared to 2013.
Most of the positive values occur in Western and Northern
Europe with a less positive outlook in Eastern Europe. The
countries that are expected to see the lowest total
population growth rate in 2014 are Bulgaria, Latvia and
Lithuania. Overall in Europe, the percentage of
population residing in urban areas will reach a relatively
high level of 73.78%. The urbanization rate may be a
critical factor when deciding what kind of products to
advertise in the area and what type of commercial
communications to use.
Total employmentWhile GDP has recovered to an extent
over recent years, the labour market is still remarkably
weak. Northern Europe is the region that registers the
highest potential change in 2014, in stark contrast to
Southern Europe. Countries which register a higher
annual growth in employment may seem more attractive
in terms of investment.
Employee compensation Per capita employee
compensation is expected to increase slightly in most
European countries in 2014. Cyprus and Greece are the
exceptions, registering negative rates for both 2013 and
2014.
Unemployment rate Investors should be wary of
countries with a high estimated unemployment rate,
mainly in Southern Europe, as there is an issue of slow
growth in those particular economies. Overall, the
unemployment rate is set to remain high over the coming
year, at around 11% in the EU.
Sector analysis
Automotive: the market is still below pre-crisis level.
Food/Alcohol: two main trends have developed as a
consequence of the crisis: on one hand, consumer
preferences for essential food items, on the other,
consumer interest in healthy food.
Financial Services: Elevated risk aversion and de-
leveraging pressures are still the main barriers that banks
have to overcome in 2014.
4
Executive summary
Based on assumptions formulated by the International
Monetary Fund1 and presented in Figure 1, growth of
gross domestic product (real GDP) is expected to reach 0.3
per cent in 2013 and is forecast to reach 1.5 per cent in
2014. The United Nations (2013) states that, with such a
moderate growth rate, ‘many economies will continue to
operate below potential and will not recover the jobs lost
during the Great Recession’.
Furthermore, the major problems that Europe has to
confront consist of ‘high unemployment, continued de-
leveraging by firms and households, continued banking
fragility, heightened sovereign risks, fiscal tightening and
slower growth’ (United Nations, 2013).
Unemployment rates remain high in most of the Member
States of the European Union and in some cases have
reached worrying levels, affecting as much as 1/5 of the
work force.
The measure adopted by most of the countries to increase
economic growth and reduce unemployment consists of
creating ‘a mix of highly accommodative monetary policy
(keeping policy interest rates near zero coupled with a
wide variety of unconventional policies) with very tight
fiscal policy, in an attempt to bring down budget deficits
(United Nations, 2013). Further steps need to be taken,
as this policy mix is still insufficient to re-invigorate the
economy. The unemployment rate at European Union
level is forecast to remain the same during both 2013 and
2014 (Figure 1).
Specialists from the European Commission’s Directorate
General for Economic and Financial Affairs (European
Commission, 2013) specify that ‘external demand is set to
remain the predominant growth driver, while multiple
headwinds continue to weigh on domestic demand. In
particular, balance-sheet adjustments in the public and
private sectors, difficult financing conditions in several
Member States, the under-utilisation of resources related
to deep adjustment processes and unusually high
uncertainty will abate only very gradually over the
forecast horizon’.
Net exports are considered to be the main driver of GDP
growth in the European Union this year but are expected
to be replaced by domestic demand in 2014 (European
Commission, 2013). Increases in domestic demand rely
on restored business confidence and on easing the
financing conditions applied to vulnerable countries.
Higher household consumption may be supported by
greater confidence among consumers and an increase in
purchasing power due to further falls in inflation.
Moreover, better labour market conditions could
encourage consumer spending in 2014 (European
Commission, 2013). Consumer price inflation is expected
to average 2.2% at European level this year and to decline
to 2% in 2014 (Figure 1).
Due to a delayed response to changes in economic
activity, the EU labour market is expected to become even
weaker in the near future. Labour market conditions are
deteriorating and job losses are still encountered in many
Member States, raising the unemployment rate in the
short term (European Commission, 2013).
Future perspectives on Europe
1 All European countries apart from Russia, Ukraine, Belarus and Moldova which are included in 'Commonwealth of Independent States' category.
5
a Annual % change
b Apart from Russia, Ukraine, Belarus and Moldova which are included in 'Commonwealth of Independent States' categorySource: International Monetary Fund, 2013. World Economic Outlook: hopes, realities, risks. Washington, p. 48.
c All 28 member states of European Union (including Croatia)Source: European Commission- DG for Economic and Financial Affaires, 2013. European Economic Forecast. Brussels, p. 134, p. 140-142.
d Number of unemployed as a percentage of total labour force.Based on European Commission estimates, several future perspectives on the main demographic and macroeconomic indicators at thelevel of European Union 27 for 2015 are presented in Figure 2. 6
Figure 1 2014 perspectives compared to 2013 on macroeconomic indicators at the European level
Source: own elaboration, based on data from International Monetary Fund and European Commission - DG for Economic and Financial Affaires.
Europe ata glance
Real GDPa,b
2013 0.3% 2014 1.5%
Consumer prices (annual averges)a,b
2013 2.2% 2014 2.0%
Current account balance (% of GDP)a,b
2013 1.5% 2014 1.4%
Total investment volumea,c
2013 -1.7% 2014 2.6%
Total populationa,c
2013 0.3% 2014 0.2%
Employmenta,c
2013 -0.4% 2014 0.4%
Per capita employee compensationa,c
2013 2.0% 2014 2.2%
Unemployment ratea,c,d
2013 11.1% 2014 11.1%
2014 perspectives compared to 2013 on macroeconomic indicators at the European Level
Demographic projections 2010 2015
Fertility rate 1.59 1.61
Life expectancy at birth (yrs) 76.7 77.6
82.5 83.3
Net Migration* 0.2 0.2
Child population (0-14* 15.6 15.6
Prime age population (25-54)* 42.7 41.8
Working age population (15-64)* 67.0 65.5
Elderly population (>65)* 17.4 18.9
Very elderly population (>80)* 4.7 5.3
Very elderly population (>80)** 7.1 8.0
male
female
Macroeconomic assumptions 2010 2015
Potential GDP (growth rate) 1.2 1.5
GDP per capita (growth rate) 0.1 1.2
Employment (growth rate) 0.5 0.3
Labour force assumptions 2010 2015
Working age population growth (20-64) 1.4 1.4
Employment rate (20-64) 68.6 70.1
Unemployment rate (20-64) 9.3 8.7
European Union
Figure 2 2015 perspectives compared to 2010 on macroeconomic indicators at the EU level
*as % of total population **as % of working age population
Source: own elaboration, based on data from European Commission - DG for Economic and Financial Affairs, 2012. The 2012 Ageing Report- Economic and budgetary projections for the 27 EU Member States (2010-2060), European Economy 2/2012, Brussels, p. 465.
7
2015 perspectives compared to 2010 on macroeconomic indicators at the EU Level
According to statistics published by the United Nations
(Department of Economic and Social Affairs, 2011),
Europe is territorially divided into the following four
main groups:
Western Europe: Austria, Belgium, France, Germany,
Liechtenstein, Luxembourg, Monaco, Netherlands,
Switzerland.
Northern Europe: Channel Islands, Denmark, Estonia,
Faeroe Islands, Finland, Iceland, Ireland, Isle of Man,
Latvia, Lithuania, Norway, Sweden, United Kingdom.
Southern Europe: Albania, Andorra, Bosnia &
Herzegovina, Croatia, Gibraltar, Greece, Holy See, Italy,
Malta, Montenegro, Portugal, San Marino, Serbia,
Slovenia, Spain, TFYR Macedonia.
Eastern Europe: Belarus, Bulgaria, Czech Republic,
Hungary, Poland, Republic of Moldova, Romania, Russian
Federation, Slovakia, Ukraine.
This territorial division is used in the present report, in
accordance with the available data sources. Several
relevant indicators for capturing the health of national
economies at regional level in Europe are analyzed within
this section of the report. These are:
real GDP growth
consumer prices
current account balance
total investment
total population
total employment
per capita employee compensation
unemployment rates
Most of the indicators are expressed as annual growth
percentages in order to allow comparisons regarding
performance over time and between countries of
different size.
8
2014 perspectives on Western, Northern, Southern and Eastern Europe
Even though most European countries are currently in
recession, the forecasts developed by the International
Monetary Fund (2013) show positive results for real
GDP growth in 2013. Moreover, in 2014, the forecast
for the overall four main regions of Europe is even
more optimistic compared to 2013 (Figures 3,4,5,6).
2014 estimates indicate a positive evolution of the
economies of Western Europe, with levels of real GDP
growth between 0.9 and 1.8 per cent annual change. The
German recovery has slowed significantly, while France’s
economy is stagnating.
Northern Europe includes growing economies, Latvia
being the leader with a 4.2% annual change in real GDP
growth for both 2013 and 2014. The UK recovery is
progressing slowly, mainly due to weak external demand
and ongoing fiscal consolidation (IMF, 2013, p. 46-47).
Most of the countries predicted to fall into recession in
2013 are part of Southern Europe. Nonetheless, potential
positive GDP estimates are presented for most of the
Southern European countries in 2014.
In 2012, Czech Republic, Hungary and Moldova fell into
recession. The perspectives on these countries show that
GDP growth is expected to remain subdued at 0.3%, 0%
and 4% respectively in 2013, with a slight increase in 2014
for CZ of 1.6% and HU of 1.2%. These countries may be at
risk of recession if further improvements are not seen at
European level.
Real GDP growth (annual % change)
Source, Figures 3,4,5,6: own elaboration, based on data from International Monetary Fund,2013. World Economic Outlook: hopes, realities, risks. Washington, p. 48, 66, 153.
Figure 5 Perspectives on Real GDP growth in Southern Europe Figure 6 Perspectives on Real GDP growth in Eastern Europe
Figure 3 Perspectives on Real GDP growth in Western Europe Figure 4 Perspectives on Real GDP growth in Northern Europe
9
A key factor in macroeconomic analysis is the inflation
rate, or the rate at which prices rise. Inflation is
primarily measured in two ways: through the
Consumer Price Index3 (CPI) and the GDP deflator. The
percentage changes in consumer prices at regional
level in Europe in 2013 and 2014 are shown in Figures
7, 8, 9 & 10.
The annual % change in consumer prices in most of the
Western European countries is estimated at around 1.4%
to 1.9% in 2014. The only exception is Switzerland, with
a very low level of consumer price inflation of -0.2% in
2013 and 0.2% in 2014.
Compared to West European countries, Northern Europe
is forecast to have higher annual % changes in consumer
prices averaging between 2 & 4%. Sweden is predicted to
register the highest increase from 0.3% in 2013 to 2.3% in
2014.
Greece is expected to have negative annual % change in
consumer prices in both 2013 and 2014, in stark contrast
to Serbia with a 9.6% increase in 2013 and a lower
increase of 5.4% in 2014.
Overall, annual average inflation is expected to remain
moderate in most Eastern Europe countries in 2014.
Elevated rates are projected for Belarus (15.5%), Russia
(6.2%) and Turkey (5.3%), mainly due to inflation inertia
(IMF, 2013).
Consumer prices2 (annual % change)
2 Movements in consumer prices are shown as annual averages.
3 ‘The CPI is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services’ (U.S. Department of Labour, 2004, p.6). The movementsof the CPI are more useful to be expressed as percent changes than as changes in index points, due to the fact that ‘the index points are affected by the level of index in relation to its reference period, whilepercent changes are not’ (U.S. Department of Labour, 2004, p.15).
Source Figure 7,8,9,10: own elaboration, based on data from International Monetary Fund,2013. World Economic Outlook: hopes, realities, risks. Washington, p. 48, 66, 157-158.
Figure 9 Perspectives on Consumer prices in Southern Europe Figure 10 Perspectives on Consumer prices in Eastern Europe
Figure 7 Perspectives on Consumer prices in Western Europe Figure 8 Perspectives on Consumer prices in Northern Europe
10
Current account balances5 (Figures 11, 12, 13, 14) have
started to improve even in the less developed
economies. Lower labour unit costs, rising productivity
and trade gains outside the Eurozone area are among
the factors positively influencing current account
balances. The advantage of the more developed
economies is represented by trade with faster-growing
emerging market economies (IMF, 2013).
In countries with a positive current account balance,
there could be a positive balance of trade (exports exceed
imports) and/or a surplus of savings over investments. In
reverse, when the current account balance is in deficit,
the economy registers a negative trade balance (imports
exceeds exports) and/or investments are greater than
savings.
Most of the Western European countries are expected to
have positive current account balances both in 2013 and
2014. The highest level is predicted in Switzerland with
approximately 12% of GDP. In contrast, France is
predicted to see a negative current account balance of -
1.4% of GDP in 2014.
In Northern Europe, countries such as Finland, Iceland
and United Kingdom are expected to register a deficit,
while Denmark, Ireland, Norway and Sweden will see
their balances in surplus.
Current account balance4 (% of GDP)
4 Percent of GDP.
5 ‘The current account balance is defined by the sum of the value of imports of goods and services plus net returns on investments abroad, minus the value of exports of goods and services, where all theseelements are measured in the domestic currency. When an economy's balance on Current Account is in surplus in a period (i.e. sum of credit entries exceed debit entries), the economy can be regarded as a netcreditor to the rest of the world. It shows the extent to which an economy is saving more than it is investing, and is providing such resources to the rest of the world. Conversely, if the balance is in deficit (i.e.sum of debit entries exceed credit entries), the economy is a net debtor. It shows the extent to which the economy is saving less than it is investing, and is drawing on the resources of the rest of the world to meetthe requirements from current consumption and investment’ (Census and Statistics Department Hong Kong, 2001).
Source: own elaboration, based on data from International Monetary Fund, 2013. World Economic Outlook:hopes, realities, risks. Washington, p. 48, 66, 166-167.
Figure 11 Perspectives on Current account balance in Western Europe
Figure 12 Perspectives on Current account balance in Northern Europe
11
Most of the Southern European countries are forecast to
have a current account balance deficit. If sometimes a
low negative current account balance is an indication of
prosperity, there are some countries with significant
deficits, such as Kosovo, Montenegro, Albania, Serbia,
Bosnia and Herzegovina, which merit cautious attention.
As with Southern Europe, most of the Eastern European
countries are predicted to have a current account balance
deficit. The average deficit is between -2% and -5% of GDP
in 2013 and 2014. The lowest extreme of around -10% of
GDP is projected for Moldova, followed by Ukraine with
c. -8% of GDP and Turkey with around -7% of GDP.
Source: own elaboration, based on data from International Monetary Fund, 2013. WorldEconomic Outlook: hopes, realities, risks. Washington, p. 48, 66, 166-167.
Figure 14 Perspectives on Current account balance in Eastern Europe
Figure 13 Perspectives on Current account balance in Southern Europe
12
Total investment includes both public and private
investment. As the European Commission (2013) states
‘total investment is projected to be mainly driven by
EU co-financed public sector projects’ in 2013. In the
case of private sector investment, the evolution is
gradual in relation to the economic recovery and
easing of financing conditions.
In 2014, total investment is expected to increase by 2.5%
in the EU. Public investment may remain subdued, while
private investment may rebound based on higher export
growth, low financing costs, increasing profit margins and
gradually fading uncertainty (European Commission,
2013).
Total investment6, volume(% change on preceding year)
6 Refer to the 28 Member States of the European Union.
13
Western Europe Even though the growth rate
predictions on total investment for most of the
Western European countries in 2013 are on the
negative side, in 2014 the situation appears better.
The exception is Austria, which is expected to
register positive values both in 2013, of 1.1% and
2014, of 2.5%. Germany is predicted to have the
highest growth rate in total investment of 3.9% in
2014. The most impressive recovery in total
investment is expected for The Netherlands which
will end 2013 with -3.3% and may reach a level of
1.6% in 2014.
Northern Europe High levels of total investment
are predicted for Estonia, Latvia and Lithuania,
which may register growth rates between 6 and 8%
in 2014. In the case of Denmark, the growth rate is
expected to go down from 2.5% in 2013 to 0.7% in
2014.
Southern Europe The predictions on total
investment for most of the Southern European
countries show negative growth rates in 2013. The
situation will change in 2014, when positive growth
rates are registered, for example, by Croatia, Greece
and Portugal. Cyprus will maintain its high negative
growth rates of -29.5% in 2013 and -12% in 2014.
Eastern Europe Czech Republic, Hungary and
Poland are the Eastern European countries that are
expected to have negative growth rates in 2013 and
positive growth rates in 2014. Romania may register
the highest level of 5% of total investment from all
the countries in Eastern Europe in 2014. The
predictions for Bulgaria and Slovakia show a growth
rate of 3% in 2014.
Source: own elaboration, based on data from European Commission- DG for Economicand Financial Affaires, 2013. European Economic Forecast. Brussels, p. 134.
According to Cohen (2010) the four major trends regarding
population are: the world population will continue to
grow; it will grow at a much slower pace than previously;
it will become older; it will be increasingly urban.
The population growth rate for almost each country
which is part of Western Europe in 2013 and 2014 tends
to remain constant. The highest population growth rate
of 1.6% in 2014 is registered by Luxembourg.
Trends in total population in Northern Europe in 2014
are similar to those in 2013. Estonia is predicted to pass
from negative with -0.1% in 2013 to the 0% level in 2014.
The negative trend in total population evolution of Latvia
and Lithuania will be maintained in 2014.
The predictions for total population for half of the
analyzed countries within Southern Europe show that the
0% level will be reached in 2014. Croatia is predicted to
register a decrease, while Malta and Portugal will reach
the 0% level in 2014 from negative values registered in
2013. Cyprus records the highest value of +1%.
Bulgaria with a population growth rate of -1% both in
2013 and 2014 represents the most worrying situation
from Eastern Europe. Also with negative rates, but
smaller, are Hungary, Poland and Romania.
2015 future perspectives on total population and
percentage of population residing in urban areas in each
region of the Europe by county are presented in figure
19. In terms of absolute value, the highest level of
population is expected in Eastern Europe, while the
highest percentage of population residing in urban areas
is registered in Western Europe.
Total population (% change on preceding year)
Source: own elaboration, based on data from European Commission- DG for Economic andFinancial Affaires, 2013. European Economic Forecast. Brussels, p. 140.
Figure 17 Perspectives on Total population in Southern Europe Figure 18 Perspectives on Total population in Eastern Europe
Figure 15 Perspectives on Total population in Western Europe Figure 16 Perspectives on Total population in Northern Europe
14
Europe742,067 73.78%
Source: own elaboration, based on data from United Nations - Department ofEconomic and Social Affaires, 2012. World Urbanization Prospects: The 2011Revision, CD ROM.
Figure 19 2015 Perspectives on Total Population (thousands) and Percentage of Population residing in urban areas
* Statistical data for Turkey is not included in the Eastern Europe total nor the European total
15
Western Europe 190,494 80.9%
Austria 8,463 68.5%
Belgium 10,867 97.6%
France 64,413 87.8%
Germany 81,471 74.5%
Liechtenstein 37 14.3%
Luxembourg 543 86.3%
Monaco 35 100.0%
Netherlands 16,850 84.7%
Switzerland 7,814 74.0%
Eastern Europe 292,236 69.7%
Belarus 9,441 76.6%
Bulgaria 7,252 75.3%
Czech Republic 10,634 73.4%
Hungary 9,903 71.3%
Poland 38,357 60.7%
Republic of Moldova 3,453 50.5%
Romania 21,240 52.9%
Russian Federation 142,229 74.5%
Slovakia 5,506 54.6%
Ukraine 44,222 69.7%
Turkey* 77,003 75.1%
Southern Europe 157,446 68.9%
Albania 3,258 57.6%
Andorra 92 85.1%
Bosnia & Herzegovina 3,716 50.4%
Croatia 4,361 59.0%
Gibraltar 29 100.0%
Greece 11,492 62.4%
Holy See 0 100.0%
Italy 61,241 69.1%
Malta 423 95.4%
Montenegro 634 64.1%
Portugal 10,702 63.2%
San Marino 33 94.2%
Serbia 9,807 57.8%
Slovenia 2,053 49.8%
Spain 47,532 78.0%
TFYR Macedonia 2,073 59.8%
Northern Europe 101,892 79.7%
Channel Islands 155 31.8%
Denmark 5,647 87.5%
Estonia 1,337 69.7%
Faroe Islands 50 42.0%
Finland 5,450 84.2%
Iceland 339 94.2%
Ireland 4,732 63.4%
Isle of Man 85 50.4%
Latvia 2,210 67.7%
Lithuania 3,252 67.6%
Norway 5,054 80.5%
Sweden 9,647 85.8%
United Kingdom 63,935 80.1%
2015 Perspectives on Total Population (thousands) and Percentage of Population residing in urban areas
Overall, the forecast for the labour market in 2014 is
slightly more optimistic for most of the European
Union countries than the estimates for 2013. But
visible improvement in the EU labour market is
expected to happen at the end of 2014 when the re-
allocation of resources from the non-tradable to the
tradable sector in vulnerable Member States will occur
(European Commission, 2013).
Netherlands is the country that maintains a negative
percentage of employment in both 2013 and 2014, while
the other Western European countries stabilize between
+0.5 & 1% in 2014. Luxembourg is the best economy in
terms of employment, registering a 1.3% increase in 2014.
United Kingdom, Lithuania and Latvia are the Northern
European economies that are expected to register an
above 1% change in employment in 2014. The countries
with a lower level of employment in 2014 are Denmark,
Finland and Sweden.
The employment prospects for most of the Southern
European countries in both 2013 and 2014 are not
optimistic, showing mainly negative values.
Low levels of variation in employment are also
encountered in Eastern European economies, which
register values between -0.2 and 0.8% change in 2014.
Total employment (% change on preceding year)
Source: own elaboration, based on data from European Commission- DG for Economic andFinancial Affaires, 2013. European Economic Forecast. Brussels, p. 141.
Figure 22 Perspectives on Employment in Southern Europe Figure 23 Perspectives on Employment in Eastern Europe
Figure 20 Perspectives on Employment in Western Europe Figure 21 Perspectives on Employment in Northern Europe
16
Western Europe Positive and increasing growth rates
between 1.1% and 3.1 % are predicted for all the
Western European economies in 2013 and 2014. A
decline in employee compensation from 2.4 % in 2013
to 1.1% in 2014 is presumed for Belgium. A similar
situation, but with a smaller difference of 0.2% is
expected in Austria. Conversely, Germany and
Luxembourg should see growth rates of 3.1% & 3%
respectively.
Northern Europe The growth rates in per capita
employee compensation are positive for both 2013
and 2014 in Northern Europe. The growth rates start
from 0.3% in 2013 and 0.2% in 2014 in the case of
Ireland and go up to 5.7% in 2013 and 6.1% in 2014 in
the case of Estonia. This indicator is predicted to
increase for almost all the Northern European
countries, apart from Lithuania and Ireland which are
expected to register slightly lower levels in 2014 than
in 2013.
Per capita employee compensation7 (% change on preceding year)
7 Refer to the 28 Member States of the European Union.
Source: own elaboration, based on data from European Commission- DG for Economicand Financial Affaires, 2013. European Economic Forecast. Brussels, p. 142.
Southern Europe Predictions for employee compen-
sation in Southern Europe vary from country to
country, starting with the lowest levels in Cyprus and
Greece, both registering negative values for 2013 and
2014 and ending with the highest levels estimated for
Croatia with 4.2% in 2013 and 3% in 2014.
Eastern Europe The European Commission (2013)
estimates similar growth rates for the Eastern
European countries as for Northern Europe. The
highest increase in per capita employee compensation
is expected in Hungary - from -0.4% in 2013 to 5.4% in
2014. Romania is expected to have the highest growth
rates of 5.5% in 2013 and 5.9% in 2014.
17
European Commission (2013) estimates indicate that
the ‘labour market performance differs widely across
Member States’ and that there are large growth
differentials visible both in 2013 and 2014.
‘Unemployment rates are expected to range between
5% in Austria and 27% in Spain and Greece’.
The highest unemployment rates in Western Europe are
predicted for France with around 10% and Belgium with
8% in both 2013 and 2014. Austria, Germany and
Luxembourg are expected to have the lowest
unemployment rates at around 5% and to be considered
among the most attractive countries for the labour force.
The least attractive countries in Northern Europe in terms
of labour market, due to a high unemployment rate
around 13%, are Ireland and Latvia. The average
unemployment rate within the region is approximately
8% both in 2013 and 2014.
The South is the most problematic region of Europe in
terms of unemployment, registering values around 26%
for Greece and Spain in both 2013 and 2014. Croatia,
Cyprus and Portugal are estimated to be in a similar
position, as they are expected to register an upward trend
in unemployment in 2014.
In most of the Eastern European countries, the
unemployment rate estimated for 2014 is broadly the
same as 2013. The Czech Republic and Romania are
expected to have the lowest unemployment rates of
approximately 7%. Slovakia is the worst hit, with
unemployment forecast at 14.5% in 2014.
Unemployment rate (number of unemployed as a % of total labour force)
Source: own elaboration, based on data from European Commission- DG for Economic andFinancial Affaires, 2013. European Economic Forecast. Brussels, p. 141.
Figure 26 Perspectives on Unemployment in Southern Europe Figure 27 Perspectives on Unemployment in Eastern Europe
Figure 24 Perspectives on Unemployment rate in Western Europe Figure 25 Perspectives on Unemployment in Northern Europe
18
Sector analysis
This section of the report presents
brief analyses of three main sectors
in terms of future perspectives. The
sectors selected are among the most
advertised on various channels,
namely:
Automotive
Food and alcohol
Financial services
19
According to OECD (2013) the automotive sector was
one of the main sectors affected by the 2008-2009
recession and ‘car demand in the OECD is still 11%
below its pre-crisis level’. Furthermore, ‘demand for
new cars in advanced OECD countries is expected to
remain subdued’ (OECD, 2013). The LMC Automotive
(2012) perspectives on car sales in Western Europe look
similar to the predictions of Roland Berger (2013),
namely an upward trend starting in 2013, but at a slow
pace (Figure 28, Figure 29).
The sales of passenger vehicles at Western European level
has started to improve in 2013, reaching positive growth
of 4% in 2014. 6% growth is expected in Western Europe
by 2015.
In 2012, the UK was the only major automotive market
to achieve growth, driven largely by private consumers
(PwC, 2013). This positive trend is not expected to be
maintained throughout 2013 (PwC, 2013). OECD (2013)
concurs, stating that, in the UK, sales demand is
expected to drop, partially due to higher oil import
prices generated by recent currency depreciation. Once
the economy improves and unemployment declines,
growth in car demand should return (PwC, 2013).
Automotive
Source: LMC Automotive, 2012. Global Car & Truck Forecast- Brochure [pdf] Available at:http://www.lmc-auto.com/default/assets/LMC-brochure-GCAT-Web-Nov-20121.pdf [Accessed19.08.2013], p. 2.
Figure 28 West European* Car Sales from 1987-2018
* In Western Europe the following countries are included: Austria, Belgium, Denmark, Finland,France, Germany, Greece, Ireland, Italy, Netherlands, Norway, Portugal, Spain, Sweden,Switzerland, and United Kingdom.
Figure 29 Perspectives on the global sales of passenger
vehicles (growth rates*) in Western Europe
*including light commercial vehicles; year-on-year growth rate
Source: own elaboration, based on data from Roland Berger, 2013. Rightsizing Europe – TheEuropean car crisis and implications for automotive suppliers [pdf] Available at:http://www.rolandberger.com/media/pdf/Roland_Berger_Automotive_Supplier_Europe_E_20130328.pdf [Accessed 17.08.2013], p. 5.
20
Germany is also experiencing a significant drop in car
sales as demand is lately adjusting to fundamentals,
but with an expected average stabilization of sales in
2013 and 2014 (OECD, 2013). The forecasts of Autofacts
predict ‘a slight decline of 1.38% in 2013, while the
outlook is expected to improve in 2014 (+2.8%) and
2015 (+4.0%) respectively (PwC, 2013). More
optimistically, Deutsche Bank Research (2013) predicts
that Germany will have a noticeable increase in new
car registrations in 2014.
Due to low growth perspectives and an estimated
increase in unemployment, average car sales in France
and Spain are expected to decline over 2013-2014. Car
sales in Italy are predicted to stabilize, though at a
lower level than that registered before the crisis (OECD,
2013). Predictions by Deutsche Bank Research (2013)
indicate that these ‘markets are not going to contract
more strongly than in the past few years’.
As the car market in Western European countries is mostly
saturated, the tendency in future years will be focused on
replacement needs (Deutsche Bank Research, 2013).
In Europe, but mainly in Southern Europe, as corporate
investment activity is not expected to recover until 2014,
car purchase stimuli from the commercial sector are likely
to remain limited for some time (Deutsche Bank
Research, 2013, p.3).
Overall in the EU-15, new car registrations in 2013 are
expected to end their downward trend and even to
increase by 5% in 2014 (Deutsche Bank Research, 2013).
In the longer term, the potential for the Western
European car market is mainly related to the negative
demographic trend in Europe (Deutsche Bank Research,
2013).
Due to the high youth unemployment rate in Europe,
some experts predict that first-time buyers will continue
to be kept out of the market (Nair, 2013). For the
moment, manufacturers are trying to attract customers
with discounts and incentives, but care should be taken
not sacrifice margins for sales (Nair, 2013). Consequently,
demand for cars is influenced both by the
macroeconomic environment and industry-specific
factors, such as substantial discounts and favourable
financing conditions, which define the European
automotive market as a buyer’s market (Deutsche Bank
Research, 2013).
21
The global Food & Beverage industry is expected to
reach EUR 5.27 trillion8 by 2014 compared to EUR 4.14
trillion in 2008. Europe holds the leading position in
the global market (IMAP, 2013).
Food demand in Europe (which mainly includes
developed countries), is reacting more quickly to
population growth and changes in lifestyles than to
income changes or prices, as is the case in developing
economies. Changes in lifestyle associated with high
incomes are generating an increase in the demand for
diets based on value added processed products,
convenience foods and meals prepared and eaten outside
the home (OECD-FAO, 2013). A similar view is expressed
by IMAP (2013) which identifies the following growth
drivers of the Food & Beverage industry:
In developed countries, rising health consciousness,
increasing need for convenience foods;
In developing countries, population growth,
favourable demographics, rising income levels.
Most EU countries with a developed economy show a
preference for packaged food, compared to developing
countries which are more attracted to buying raw
materials. But as income rises, the tendency in
developing countries is to consume more and more
packaged food products (IMAP, 2013).
According to OECD and FAO (2013) the difference between
the global crop and livestock sectors will become more
Food and alcohol
Source: own representation, based on data from World Health Organization, 2013. WHOEuropean Region Food and Nutrition Action Plan 2014-2020 (Draft) version 1.1 [pdf] Availableat: http://wphna.org/v2/wp-content/uploads/2013/03/13-03-09-WHO-2014-2020-Draft-action-plan-draft.pdf [Accessed 19.08.2013], p. 18.
Figure 30 Current concerns on food and nutrition security
and more apparent. On one hand, falling prices are
associated with crop agriculture which is reacting to large
suppliers and stock replenishment generated by high
prices in recent years. On the other hand, high feed costs
and reduced livestock inventories and production are
causing high and increasing prices for livestock products
(OECD-FAO, 2013). Overall, the prices of agricultural
products are expected to rise over time, although the
pace of the increase still remains uncertain (OECD-FAO,
2013). This increase may be determined by high
production costs which lead to a slower production
growth and hence rising demand for products.
As the food retail business is mainly influenced by
consumer preference, the recent crisis has generated a
global slowdown. Consequently, two main trends have
developed, on one hand consumers’ preference for
essential food items, and on the other, consumer interest
in healthy food. Consequently, the first tendency refers
to the consumers who are more careful with prices and
prefer frozen foods which are cheaper and can be cooked
at home easily, and the second to consumers who are
demanding healthy products regardless of price (IMAP,
2013).
Some current concerns on food and nutrition security,
expressed by the World Health Organization (WHO) (2013),
are presented in Figure 30.
8 The sums were calculated according to the parity USD/EUR of 0.753 for the month of August 2013, by using InforEuro accessible at:http://ec.europa.eu/budget/contracts_grants/info_contracts/inforeuro/inforeuro_en.cfm
22
Food suppliersglobal warming, urbanization population,bio-fuel competition
Food prices commodity dependence, subsidies andtaxes on land, carbon path
Food access retail distribution, transport policy
Facilities institutional, retail and domestic kitchens
Nutrition education knowledge and skills, health professionals’training
Marketing messages and claims, label informationincluding nutrient profiling, pricingstrategies, placement
FOOD andNUTRITIONSECURITY
In terms of the promotion of foods, the World Health
Organization (2013) identifies as leading categories of
food being advertised HFSS9 foods such as ‘soft drinks,
sweetened breakfast cereals, biscuits, confectionery,
snack foods, ready meals and fast food/quick service
outlets, with television remaining the dominant medium
for advertising.
A future policy interest at international level is to
promote food reformulation through nutrient profiling
to offer a clearer picture of what kind of food products
should be promoted. Consequently, WHO (2013) is
elaborating a framework manual with guidelines for the
development or adaptation of nutrient profile models.
The alcohol industry principally includes the beer,
cider, ale, wine and spirits markets. The global
alcoholic drinks industry is expected to reach EUR 0.75
trillion in 2014 equivalent to a volume of 210 billion
litres. The European Union is positioned at the top of
the market with 57% of world alcohol consumption
(BusinessVibes, 2013).
Anheuser-Busch InBev is the biggest alcohol producer
with over 20% of the global market volume
(BusinessVibes, 2013).
9 Foods high in saturated fats, trans-fatty acids, free sugars or salt
10,11,12 The sums were calculated according to the parity USD/EUR of 0.753 for the month of August 2013, by using InforEuro accessible at:http://ec.europa.eu/budget/contracts_grants/info_contracts/inforeuro/inforeuro_en.cfm
The global beer market is currently the leading segment
of the alcohol industry, with almost 56% of overall market
value. In terms of volume, it is predicted to exceed
160,000 million litres in 2014 compared to 148,000
million litres in 2009, while the market value is expected
to top EUR 374 billion10 by 2014 (BusinessVibes, 2013).
According to BusinessVibes (2013), the global wine
market is forecast to exceed 26 billion litres by 2015.
Apart from traditional regional leaders in Europe such as
Italy and France, the growth potential is more evident in
developing nations such as Russia over recent years.
The global cider industry value is set to surpass EUR 1.88
billion11 by 2015 with the UK as the world’s biggest and
most rapidly expanding market. This expansion is based
on aggressive marketing, increased demand from young
consumers (18+) and rising disposable incomes
(BusinessVibes, 2013).
The EU represents almost 48% of the global spirits
market’s overall value which is expected to reach EUR
230 billion12 in 2015, a 17% increase over five years.
Whisky is the overall leader with over 26% market share
(BusinessVibes, 2013).
23
The situation of the Financial Services Industry at
global level, expressed by total deposits and total
loans, is presented in Figure 31.
Total deposits reached EUR 58.8 trillion13 in 2009 and are
expected to follow an upward trend, reaching EUR 82.15
trillion14 in 2014. A similar trend is also predicted for total
loans which are projected to reach EUR 86.75 trillion15 in
2014.
According to the data registered by the European
Commission (2013) on credit flows and credit standards,
the new bank conditions for funding need to be visible
in the market by ‘increasing credit supply and an easing
of lending conditions across countries’. Elevated risk
aversion and de-leveraging pressures are still the main
barriers that banks have to overcome in the short to
medium term.
Based on the EIF Corporate Operational Plan 2013-2015,
financial institutions across all EU eligible countries may
benefit from different products and mandates
represented by the SME Guarantee Facility, SME
transaction securitisation, Risk Sharing Instrument
facility, microfinance activity and guarantees to business
through EIF local mandates (EIF, 2013).
Financial services
Source: Deloitte and Investment Support and promotion Agency of Turkey, 2010. TurkishFinancial Services Industry Report [pdf] Available at: http://www.invest.gov.tr/en-US/infocenter/publications/Documents/FINANCE.INDUSTRY.PDF [Accessed 22.08.2013], p. 5.
Figure 31 Total deposits and total loans at the world level
13,14,15 The sums were calculated according to the parity USD/EUR of 0.753 for the month of August 2013, by using InforEuro accessible at:http://ec.europa.eu/budget/contracts_grants/info_contracts/inforeuro/inforeuro_en.cfm
24
2013 is expected to be the last year of asset shrinkage in
the Eurozone and 2014 is predicted to be much healthier,
as mentioned by Marie Diron, Senior Economic Adviser
to The Eurozone Financial Services Forecast (EY, 2013).
Lending to businesses and households is forecast to fall
by 0.5% across the Eurozone in 2013, but is expected to
start to grow again in 2014 at a rate of 2.9%. Lending in
Spain is forecast to contract by 5.1%, in contrast to
positive growth of 0.8% in Germany and 0.6% in France
(EY, 2013).
As a result of the rise in Non-performing loan (NPL) rates
in the peripheral economies, NPLs in the Eurozone will
“The financial services sector remains the principal
mechanism for distributing investment capital to the
wider economy and it now needs to play a vital role in
the economic recovery. There is a sense that the
industry as a whole is close to turning a corner,
however the forecast is divided between north and
south, and also between systemically important
financial institutions (SIFIs), which continue to
strengthen, and smaller national banks, for whom the
near-term outlook is less certain.” declared Andy
Baldwin, Head of Financial Services, Europe, Middle
East, India and Africa (EMEIA) at EY (EY, 2013).
25
peak at a Euro-era high of 7.2% in 2013. NPL rates are
already declining in France, Germany and The
Netherlands this year, but will climb to a peak of 10.2%
in Italy and are forecast to reach 12.8% in Spain (EY, 2013).
Insurers should take note if the Eurozone does not shrink
in 2013 and grows by 1.7% in 2014, which is faster than
the 1.1% baseline forecast. Consequently, inflation would
rise to 2.8% by the end of 2014, causing the European
Central Bank to increase interest rates from 0.75% to
1.25% in 2015, rather than keep them on hold until the
middle of 2017. Ten-year Eurozone government bond
yields would rise from 3.4% in mid-2014 to 4.7% by the
end of 2015 (EY, 2013).
Growth in life insurance premiums is now expected to
be subdued, forecast at 1.6% in 2013, and then growing
by c.2.6% a year until 2017. Sales in Italy and Germany
declined for the second year running and sales in France
declined sharply in part due to competition from banking
products (EY, 2013).
In 2007, hedge funds and funds of funds managed 50%
more money than multi-asset funds, but by the end of
2017 multi-asset funds are forecast to manage 40% more
assets than the other two types. Multi-asset funds have
benefited from the demand for smaller pension funds
wishing to outsource asset allocation (EY, 2013).
Starting from the paradigm that the purchasing process
is moving towards online channels and that face to face
interaction at a bank branch is therefore less and less
common, advertisers and agencies should be rethinking
their strategic priorities in 2014 and beyond, a view
expressed by leading commentators on the sector:
“A strategic priority for 2014 will be to find ways to
leverage social media and mobile for growing share of
wallet through deepening customer relationships”
Chris Skinner, Financial Services Club (Bank Marketing
Strategy, 2013).
“There is a great opportunity for marketers to use tools
like Vine, Instagram, Twitter, Facebook and Google or
to develop a mobile app to solve a problem, make life
easier and of course engage with the customer as they
map the digital customer journey.” Elizabeth Dias,
financial services and retail marketing manager at
Perficient (Bank Marketing Strategy, 2013).
“The future reduction in (bank) branches across the
globe will require digital marketing acumen and
‘gamification’ and social media marketing will also
play a big role here, as will the importance of ‘one-
touch’ mobile marketing.” Alex Bray, London-based
retail channel director at Misys (Bank Marketing
Strategy, 2013).
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DisclaimerThis Document has been prepared for information purposes relating toeconomic perspectives in 2014. This Document does not purport to beall-inclusive nor to contain all information that a prospective investormay require in deciding whether or not to invest in Europe or in anyparticular region of Europe. No representation or warranty, express orimplied, is or will be made in relation to the accuracy or completenessof this Document or any other written or oral information madeavailable to any perspective investor. The information contained hereinwas prepared based on publicly available information sources at thetime that this Document was prepared. In particular, no representationor warranty is given as to the achievement or reasonableness of futureprojections, targets and estimates, if any.
Under no circumstances should this Document itself or any modifiedversion be published or sold by any third party in return for a fee.Reproduction is authorized, except for commercial purposes, providedthat suitable acknowledgment of EACA as source.
26
References
Author: Dr Alina Elena [email protected]
Editor: Dominic LyleEuropean Association of Communications Agencies
Brussels, Belgium Tel: (32-2) 740 07 10www.eaca.be
October 2013