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issue: January 2004 APPLIANCE Magazine

52nd Annual Appliance Industry Forecasts
Europe To Walk While Others Run


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by Lincoln Brunner, Contributing Editor

Matching the Euro-zone's growth against the expansion of the U.S., Canadian, and Asian economies in 2004 may be a bit like watching pack mules race thoroughbreds.

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."


"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."

Giuseppe Salvucci, Merloni Marketing Director



Read all the articles from our January 2004
52nd Annual Appliance Industry Forecasts

Click here for the complete Forecasts index, including:
  • Europe
  • Latin America
  • Asia
  • North America
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