Viva Espana?

Viva Espana?

With Britons basking in warm May sunshine and the prospect of a hot summer to follow, 2014 could be a year when the consumer barometer sizzles.

Already the level of peoples’ optimism and the strength of the ‘feel-good’ factor are at post-millennium highs.

Financial wellbeing is set to regain its pre-recession level (+50) in the summer/autumn and confidence could test record highs.

The remarkable change of mood in the past year has wrong-footed most commentators, especially economists.

When Mark Carney held his first Inflation conference in August last year as bank of England Governor, he spoke of only 2.4% growth in 2 years- time. In the recent Inflation report 2014 GDP growth was expected to be over 3%.


 
Source: European Commission / GfK NOP / JGFR

Not only consumers, but businesses also are now reporting confidence at record levels. The financial markets are also backing Britain with sterling riding high and holidaymakers set to enliven continental beaches and resorts this summer with more currency to spend.

Marketers are joining in the economic party. The April IPA Bellweather report shows the largest upward revisions to marketing budgets in over 14 years in Q1. A net increase in marketing budgets for the first time since 2006/7 is expected in 2013/14 on the back of much greater optimism over company and industry prospects.

Indeed is all the positive economic news just too good to be true? Certainly efforts are being made to reign in the economic partying.

With general election fever already beginning, some key issues are already emerging. Inequality, especially in wealth, will be a major theme. Last year net household wealth was set to break through the £8 trillion level and a further jump is expected in 2014.

All governments want to see positive house price growth to create a feel-good factor in election year. The recent surge in house prices has added to the wealth of existing homeowners making it difficult for first time buyers without Help to Buy or family support. A repeat of 2009 appears on the cards when mortgage demand outstripped supply.

The constraints on lenders are such that they will be unable to provide the 500-600,000 mortgages needed quarterly to meet demand leaving many young people frustrated. At the same time the latest GfK data shows more people intend to undertake major property renovations/DIY suggesting staying put is the choice for many, further adding to property scarcity and in the short term pushing prices higher. An autumn reversal of house prices is possible as sellers find fewer desperate buyers.

Talking of elections this week sees the European elections, coming just two weeks after the fascinating voting patterns revealed in the Eurovision song contest.  Indeed perhaps more attention needs to be given to Europe and to European Central Bank Governor Draghi, who appears along with German Chancellor Merkel, to have brought about remarkable economic change to the peripheral European economies.

All the so called PIGS – Portugal, Ireland, Spain and Greece - have seen borrowing costs slashed and economic sentiment measures, including consumer confidence, jump in the past year.

The question increasingly debated across Europe in the next 2 months will be whether a European winner of the World Cup will emerge – and the impact it will have on confidence and retail sales. Across the EU, 10 countries are through to the finals of the World Cup – Belgium, Croatia, France, Germany, Greece, Italy, The Netherlands, Portugal, Spain and England (representing the UK).


 
Source: European Commission / JGFR – April 2014


With bookmakers making Germany and Spain the leading European nations to win the World Cup and England relatively outsiders, World Cup boosts to confidence/sales may be more likely in the former countries. UK retailers are already close to the record level of trading conditions reported in February.

In the UK (represented by England) confidence between May and July in the 7 World Cup campaigns since 1982 has risen on 3 occasions – most notably in July 1990 when England reached the semi-final in Italy (+6 points) and in 1986 in Mexico (+5 points) when Maradona’s hand put England out in the quarter-finals. The biggest fall in sentiment was in France in 1998 (-8 points) following the exit to Argentina in the last 16.

The last campaign in South Africa saw a 4 point fall in confidence when England lost in the last 16 to Germany. In the following months confidence in the UK slumped as the age of austerity kicked in while in an improving economy, German confidence moved sharply higher.

Last May we blogged about the German invasion of London when Bayern Munich and Borussia Dortmund contested the Champions League Final; this year in Lisbon it is the two Madrid teams contesting the final. While an England run to the knock out stages will again surprise many pundits, summer excitement this World Cup seems more likely in Spain not only in football but in the property market and a place in the sun. Viva Espana!


John Gilbert is chief executive of JGFR and chairman of charity Cricket for Change. Read more from him in our Library.

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