Doug Anderson, SVP, Research & Development, The Nielsen Company
SUMMARY: The European Union is a mega market with an economy larger than the United States. While Nielsen reports consumer confidence in the U.S. today is higher than in Europe, spending intentions tell a different story. The International Monetary Fund data shows that while the U.S. is initially experiencing a faster and stronger recovery from the current recession, the entire EU will move past the U.S. in growth by 2014.
Twenty years ago, the government of East Germany announced that travel restrictions between the east and west would be lifted. Over the next several weeks, sections of the Berlin wall were torn down, placing Germany on the path to a reunification made formal barely a year later in October of 1990. The fall of the wall and the subsequent division of the USSR has propelled the European Union (EU) from its original six members in 1957 to 27 today.
The EU is now a mega market with nearly 500 million inhabitants and an economy larger than the United States. Data from the Boston Consulting Group show that the new Europe has passed the U.S. in wealth and its GDP is nearly as large as the U.S. and China combined.
Growing consumer confidence
Latest findings from Nielsen’s Global Consumer Confidence Survey reveal that U.S. confidence today is higher than in Europe overall. And while Europe is more united today than ever in its history, there are still strong economic divisions within the EU and the European continent.
The latest International Monetary Fund (IMF) data show that while the U.S. is initially experiencing a faster and stronger recovery from the current recession, it also shows the entire EU moving past the U.S. in growth by 2014. For the sixteen Euro-based countries in the Eurozone, this translates to a per-capita growth rate more than twice what is expected in the U.S. Partially, this advantage comes from a lower level of government deficits. Government debt in the U.S. will likely reach 94% of GDP while the same measure for the EU will be around 79%.
Optimistic European outlook
Aligning with IMF projections, Nielsen reports that while 91% of Americans said that the U.S. was in a recession, only 85% of Europeans agreed. Northern Europeans in Finland, Norway and Sweden were the most bullish with only 61% agreeing that they were in a recession. This gap between Northern Europe and the rest of Europe appears throughout the consumer survey data. Northern Europeans are the most upbeat about the economy and the future followed by Western Europe and then by Eastern Europe.
Interestingly, despite IMF projections, Americans were much more confident about what the future might hold compared to Western or Eastern Europeans. Half of Americans think their personal finances will be Good or Excellent in the next year, whereas only about 40% of Eastern/Western Europeans believe the same. Northern Europeans are the exception, with over 60% thinking things were looking up for their personal finances. The U.S. and Northern Europe also agree about job prospects, while Eastern Europeans don’t see much relief on the horizon.
Perhaps the reason economic projections post-recession favor Europe a bit over the United States is because there are stark spending differences between the two countries. While Europeans are much more likely to spend spare cash in the marketplace on clothes, entertainment, technology and vacations, Americans are much more likely to put their extra cash into the equity markets or to pay down their existing debt. More than one quarter of Americans (26%) reported that they simply do not have spare cash to spend—a level 56% higher than in Europe.
The recession has caused everyone to cut back on spending. But Europeans and Americans have cut back on different things as seen in the table below. Consumers in both countries have cut back spending similarly on vacations, clothing and major household appliances. And more than half of Europeans and Americans have switched to cheaper grocery brands.
When asked which of these expense-saving strategies they planned to continue even after the recession is over, both Europeans (42%) and Americans (61%) most frequently mentioned cutting back on gas and electricity. Second most frequently mentioned on both sides of the Atlantic was continuing to use less expensive grocery brands. While the first strategy has clear implications for the struggling U.S. automobile industry, the second has clear implications for consumer packaged goods. Private label has always tended to do better in recessions, but if consumers hold true to what they say, then branded products may have difficulties picking up sales lost during the recession.
Biggest future concerns
The economy led the list in both Europe and the U.S. among the biggest concerns over the next six months, though Americans were more than twice as likely to see the continuing recession as their biggest concern. Job security, debt, health and work/life balance were among the top concerns cited.
Big, strong and still growing
Europe today looks very different than it did when the first cracks of light shone through the Berlin Wall. The European Union is more united and stronger than at any time in the past. It is also better off economically, even after integrating many of the former Soviet countries. And it continues to grow—at least six new countries are seeking entry into the EU. However, even with its more regulated system of capitalism, the EU is not immune to the global recession. Because more of Europe’s economy is based on trade than in the U.S., it was hit harder by the recession.
For much of the period since World War II, the economy of the United States has led the world, in good times and bad. Today, though, the EU is bigger and still growing, and will challenge U.S. dominance on a global scale.