In fact, "hampered" is a word often heard from forecasters for Europe
- hampered by sluggish consumer spending, hampered by labor inflexibility,
hampered by a euro that only seems to get stronger against the dollar
and further restrict exports.
"Recent indicators suggest that the economy turned the corner over
the summer, but the rebound looks to be modest initially as household
sentiment has remained poor due to deteriorating job prospects," the
Organization for Economic Cooperation and Development (OECD) said in
its Outlook No. 74, released in November 2003.
Indeed, one need only peek at third-quarter GDP numbers in Germany
(the European Union's largest economy) to realize the barriers to Europe's
2004 rebound, said Howard Archer, managing director-Western Europe for
research firm Global Insight Inc. The German economy expanded by 0.2
percent quarter on quarter in Germany, the first expansion in a year,
Global Insight reported.
"We're almost certainly going to be raising our European forecast for
next year [2004]," Mr. Archer said. "I think there are clear signs that
recovery is becoming more firmly established. Having said that, there
are significant problems in Europe.
"Although our central forecast is for recovery to develop slowly in
Germany, there is still the danger that consumers and businesses will
be very cautious in picking up their investments and employment because
of … some of the uncertainty that still surrounds the general economic
situation in the country. With the labor market unlikely to turn around
in Germany until probably the second half of next year [2004], it's likely
consumers will only slowly improve spending, despite the tax cuts that
are likely to happen next year."
Looking ahead, European appliance maker Merloni Elettrodomestici -
owners of the Indesit, Hotpoint, and Ariston brands - is predicting far
slower growth in Western Europe, while the Eastern European market remains
an ongoing source of hope in 2004.
"In the western part of Europe, we expect demand to grow between 2
and 3 percent next year [2004] after 2 or 3 years of flat or maybe decreasing
demand," Merloni Marketing Director Giuseppe Salvucci said of 2004 numbers. "In
Western Europe, globally speaking, we are observing now that things are
going a little bit better in terms of volumes, and we think - looking
at a long-cycle period - that this may be the best forecast we can hope
for in the western countries.
"A completely different picture is [developing] in the eastern countries,
where we have been looking at a market growing at a level of around 10
percent each year for the last couple of years," Mr. Salvucci added. "And
we expect this type of growth trend remaining more or less the same in
2004."
For its part, Sweden's Electrolux Group is hoping that a variety of
new product launches will carry it to better times in the coming year.
The company is launching the Timeline washing machine, which alerts users
to the exact time a load of laundry will be done; the Icon range, which
will be launched in Scandinavia with features such as a steam oven; an
espresso machine in a stainless design; and an American-style side-by-side
refrigerator.
"In 2004, Electrolux will continue focusing on providing high-quality,
high-value products in almost all market segments," said Jacob Broberg,
Electrolux's vice president of Media Relations. "Product development
based on consumer insight is important. The expansion of product offerings
and market coverage with the Electrolux brand is a key focus. We have
started to build Electrolux as our master brand."
Bringing The Heat
The heat wave and ensuing drought and forest fires that slammed the
European continent during the spring and summer of 2003 wreaked havoc
with the farming and forestry sectors, while shippers on the Danube and
Rhine rivers suffered heavy losses because of record-low water levels.
2003's heat wave may finally change the attitudes of Europeans who
long have given the cold shoulder to air-conditioning units, the Hong
Kong Trade Development Council reported in December 2003. The Council
quoted a representative of importing company WinEurope, which predicted
that sales of air-conditioners might double for them "and for the rest
of the industry" in 2004.
Hungary was among the group of hardest-hit countries, which also included
France, Italy, Germany, Spain, Portugal, Austria, Estonia, and Slovakia,
Gaemelke noted.
Euro Versus Dollar
Just as with the Canadian dollar's recent rise, as the euro continues
to strengthen against the dollar, those dependent on exporting may continue
to suffer some negative effects.
"The appreciation of the euro in effective terms since the start of
2002, which now amounts to 20 percent, probably contributed to the 2003
downturn," the OECD said in its report. "While the positive terms of
trade effect has implied a favourable [sic] impact on prices, real household
incomes, and the import costs of firms, it has adversely affected net
foreign trade and the profit margins of the exposed sectors."
The euro isn't the only currency feeling the double-edge sword of appreciation.
Electrolux suffered a 6.6-percent drop in net sales in the first 9 months
of 2003 compared to the same period the year before, largely because
of currency issues. Compared with the first 9 months of 2002, changes
in exchange rates, in terms of transaction and translation effects, decreased
Electrolux's operating income by 820 million Swedish kronas (U.S. $111.25
million), the company reported.
Overall Outlook
"With stronger U.S. growth, the outlook for the Euro-zone is brighter
as exports are expected to gain momentum, though the euro's appreciation
will dampen this impact," the Bank of Montreal's BMO Financial Group
said in its Outlook 2004.
"On balance, we expect the Euro-zone recovery will take hold but look
unimpressive compared to others, as not only have policies been less
expansionary than in many other countries, but structural rigidities,
such as inflexible labour [sic] markets, continue to restrain potential
growth."
As a result, BMO is calling for Euro-zone growth of only 2 percent
in 2004, compared with 4.2 percent in North America, 7.8 percent in China,
and 3.4 percent in Latin America.
Recovery in the rest of the world should spill over to Western Europe,
but the domestic sector "still is not going to be that strong," said
Laurie Peterson, senior economist for the Bank of Montreal in Toronto.
"They don't have the fiscal and monetary stimulus in place that you
have in the U.S.," Ms. Peterson said. "The main engine of growth will
continue to be external demand, [with] strong U.S. growth pulling up
the rest of Europe." |
