1. european market
BY JOHN GILES
T
he latest developments in the Eurozone are an eye-opener
for not only the produce industry but also all trade markets.
Here are some compelling stats to consider for your business,
or trade, along with how it will impact consumers and their fresh
produce purchase behaviour.
SLOW GROWTH
Growth in the Eurozone* in the first three quarters of 2014 faded
away in Q4, and with it, confidence that the economy was on a path
to sustainable growth. With concerns regarding falling consumer prices
(the Consumer Price Index – CPI) which is currently -0.2 percent,
high unemployment, high government debt and unresolved structural
issues between Member States, most economists recently cut their
forecast for 2015 and are now predicting GDP growth of between
0.8 percent to 1.1 percent.
Comparative Eurozone forecasts for GDP growth in 2015 (annual % change)
WHO FORECAST DATE
IMF +0.8% Jan 15
World Bank +1.1% Jan 15
OECD +1.1% Nov 14
European Commission +1.1% Nov 14
Ernst & Young +0.8% Jan 15
Markit +0.8% Jan 15
Capital Economics +1.0% Jan 15
Source: Respective Organizations
BUYING TIME
The European Central Bank (ECB) implemented a new monetary
policy strategy (Quantitative Easing, or QE) to attempt to stimulate
growth by purchasing €60 billion in asset-backed securities every
month until the end of September 2016. The total QE package could
be as much as €1.1 trillion and, it is hoped, that this injection of
money into the Eurozone economy will encourage banks to lend
more money to businesses and to private consumers. This will, in
turn, increase spending and therefore encourage growth.
QE will not solve the problems of the Eurozone, but it will buy
it some time to start to resolve structural and political problems
between Member States (especially between Northern and Southern
European nations). On the back of poor economic data and the
announcement of the ECBs QE programme, the value of the Euro
has fallen, particularly against the GB£ and US$. This will have two
effects. First, a weak Euro will temporarily boost the competitiveness
of Eurozone exports and will therefore encourage growth. Good news
for countries such as Holland, France, Italy and Spain maybe and
other EU export sources. Secondly, it will also mean imports into the
Eurozone will become relatively more expensive and could dampen
demand. This could affect fruit and vegetable imports from the likes
of the U.S., Brazil, Argentina, Chile, South Africa, Kenya, Thailand,
New Zealand and others outside the Eurozone.
A POSSIBLE WELCOME BREAK FOR CONSUMERS
Despite considerable uncertainties in the Eurozone economies,
the prospects for some consumers may be improving, at least in
the short-term. The prevailing rate of interest set by the ECB is
0.05 percent and, given weakness in the Eurozone, a rate rise in
2015 seems unlikely. Low interest rates will help to keep borrowing
costs down, especially for mortgages — most household’s biggest
expenditure item. The combination of a fall in fuel, food and energy
bills will ease the pressure on household budgets. This may help to
stimulate consumer spending and lead to economic growth across
the Eurozone.
IMPACT ON FOOD EXPENDITURE
We would anticipate the improvement on household budgets,
caused by falling fuel, energy and food bills, to have a positive effect
on food expenditure. This includes fresh produce. However, this effect
is only likely to be moderate, as it will be constrained by the low
growth felt across the Eurozone as a whole. We also expect many
current behaviours will continue to play out; for example:
• Growth at the discount end of the retail market
• Growth at the premium end of the retail market
• Price sensitivity: consumers have undoubtedly
become more aware and sensitive to food prices.
CONCLUSION
Despite the less than optimistic short-term economic outlook, the
Eurozone still holds a major attraction for international suppliers,
including the U.S. It is still the largest trading bloc in the world and
is home to 335 million consumers, with an average GDP per capita
of US$ 32,152. It has always been the case that some countries
within the Eurozone are better opportunities than others. This is
more likely to be the case now than ever before and we recommend
a strategy for U.S. exporters that targets specific countries, rather
than the region as a whole.
*Eurozone countries include: Austria, Belgium, Cyprus, Estonia, Finland, France,
Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands,
Portugal, Slovakia, Slovenia, and Spain.
John Giles is a divisional director with Promar International, the
value-chain-consulting arm of Genus plc, and a specialist in international
produce markets.
Prospects For The
Eurozone In 2015
128/ JUNE 2015 / PRODUCE BUSINESS
Euro.indd 1 5/26/15 10:50 AM