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Some Good News for Europe, but Not Much

Uncertainty still hangs over Europe, where politicians struggle to wring out near-term fixes for ongoing economic woes. However, consumers in some pockets of Europe recently shrugged off the malaise (at least for a little while) and pulled out their wallets.

Recently released retail sales reports from around Europe showed a general unexpected uptick in May. According to reports from Forbes and Bloomberg, gains in France, Ireland, Portugal, Sweden, and Switzerland from April helped offset decreasing demand in Germany and Spain. (Italy had not posted its May numbers when the reports came out, but it did have a down month in April.)

Coming into June, the Samsung Galaxy S3 phone topped the “hot” list and had mobile operators excited. According to Forbes, sales have been “remarkably strong,” and the phone could have a blockbuster run during the summer, because of uncertainty about when {complink 379|Apple Inc.} will unveil its new iPhone.

But {complink 4751|Samsung Electronics Co. Ltd.} took a more cautious view of the European market. Even though Galaxy smartphone sales fueled a record quarterly profit of $5.9 billion, the South Korean technology company says it is worried about how Europe's debt crisis will impact television and home appliance sales.

It's hard to say what tipped consumer spending in some places and not others, and the reports I read online didn't provide much insight. These numbers — and broader consumer sentiment — fluctuate frequently and often include some amount of seasonality. Nevertheless, given the overall depressing climate in Europe, they were welcome news.

Despite the May retail sales figures, which actually fell 1.7 percent from a year earlier, the economic outlook is grim — or, at least as most people here are getting used to hearing, not much different from what it has been the last few years. Economists forecast unchanged sales, and Bloomberg reported that “Europe's economy probably failed to grow in the second quarter as budget cuts eroded consumer spending just as companies stepped up job cuts and global demand faltered.” Then there's the issue of unemployment, which is a constant drag on the economy and hit a record high in the euro zone in May.

There was some euphoria in the stock market after Europe's 19th crisis conference in Brussels last week, which, according to the Economist offers “guarded optimism” for regional improvements. Nevertheless, it's questionable if political leaders have gone far enough with reform efforts. For instance, International Monetary Fund chief Christine Lagarde said again this week that even though she applauds the steps taken so far, more must be done to solve the euro zone crisis.

EBN will host a live Webchat next week on the economic situation in Europe and its impact on high-tech companies, many of which will be reporting second-quarter numbers in the coming weeks. Click here to register.

20 comments on “Some Good News for Europe, but Not Much

  1. Anna Young
    July 7, 2012

    “Europe's economy probably failed to grow in the second quarter as budget cuts eroded consumer spending just as companies stepped up job cuts and global demand faltered.”

    Jennifer great article. It is good to read that Samsung Electronics Co raked in a record profit from its latest smartphone device (deservedly so). The market seems to be buoyant in this market segment. The company is wise to have taken a cautious view regarding other electrical appliances sales as things haven't improved much in this area.

    On the other hand, as you have correctly analysed, that Europe's economy probably failed to grow due to budget cuts and high unemployment record. I agree with your analysis – situation hasn't improved. It's clear from economic history that the rate of resource growth sets the speed limit of an economy. Thus, if the labour force growth is slow, then the consumers will be cautious to spend and this may have impacted slow growth.. Christine Lagarde has said well that more must be done to solve the Euro Zone crisis.

  2. Nemos
    July 8, 2012

    “It's hard to say what tipped consumer spending in some places and not others,”

    Indeed, I have exactly the same view as you, for example, Portugal is facing problems with its debt (as Greece) but Sweden is wealthy enough but in both countries, we saw this spending.

  3. Anand
    July 9, 2012

    Uncertainty still hangs over Europe, where politicians struggle to wring out near-term fixes for ongoing economic woes.

    @Jennifer, true uncertainty in Europe is far from over. Infact EUR-USD  hit a two-year low of $1.2225 in early Monday Asian trade which shows that europe is still in deep trouble. Needs to be seen when will things start improving in europe.

  4. Anand
    July 9, 2012

    Christine Lagarde has said well that more must be done to solve the Euro Zone crisis.

    @Anna, I feel european leaders have put lot of effort to solve the euro-zone crisis. I am not sure what else they can do to solve this ? According to you what other steps they can take solve this crisis ?

  5. bolaji ojo
    July 9, 2012

    Anandvy, European leaders may have done whatever they need to do to solve the Euro-area crisis but it's not all on them alone. Citizens would have to take whatever steps necessary at the individual and family levels also. I don't believe this crisis will be solved by the various governments alone.

  6. Anand
    July 9, 2012

     Citizens would have to take whatever steps necessary at the individual and family levels also.

    @Bolaji, what steps can citizens take other than increase their spending to help resolve this crisis ?

  7. Jennifer Baljko
    July 9, 2012

    Hi Anna – Yes, as you well know from living in this part of the world, caution seems to be the driving sentiment. And while Lagarde and many others think more could and should be done (and I don't necessarily disagee), it would be nice to see more creative thinking around job growth instead resorting to more budget cuts. It seems people here in the EU are more comfortable talking and complaining about the social service and government-worker pension cuts than the much-needed investment in entreprenuerial projects that could well bring longer-terms solutions to this mature geography.  Either way, it could be a long time before the region as a whole is healthy again.

  8. Jennifer Baljko
    July 9, 2012

    Hi Nemos – I'm with you. Doesn't make much sense. But, I guess, just maybe,  in places like Greece and Portgual people are tired of squandering away and constantly being told how bad their country is doing… maybe they think a little retail therapy will help chase away the bad news… it will, until they open their credit card bills next month.

  9. bolaji ojo
    July 9, 2012

    Jennifer, I run scared when I see anything about credit cards. So should anyone who doesn't have a lot in savings. But, in order for Europe to grow again consumers would have to start spending again. It's a double whammy.

  10. Jennifer Baljko
    July 9, 2012

    Yes, saw that (the news about the latest currency rate). What a roller coaster ride it will be.

  11. Jennifer Baljko
    July 9, 2012

    Right, Bolaji… there is a double whammy…. you have to hold the line on savings while spending money to move forward. That applies to government, companies and individuals I think. Somewhere in all the noise and in-between the ups and down, fiscal sanity has to be a common denominator across the board.

  12. Anna Young
    July 9, 2012

    Jennifer, I couldn't agree with you more. Lagarde and co can only offer talks and further austerity measures with no outright solution to the continuing plague. Germany and the rest oppose growth solution because to them it's simply a currency or debt crisis not a balance of trade issue. Here in the UK, its further government cuts etc. I hear talk of possible break up of EU. Will this alter anything? It's become politically marred now. Here's what Tony Blair Former UK prime minister offers, http://www.tonyblairoffice.org/news/entry/tony-blair-europe-needs-a-grand-plan-to-save-the-single-currency/

  13. Daniel
    July 10, 2012

    Jennifer, as of now Galaxy had made enough sales & profit to the parent company. But I don't think that may be the case for atleast next 2-3 quarters, due to the launch of low cost Google Nexus 7, Amazon Kindle, MS Surface etc. They may lose the grip over European mobile market, due to high competition.

  14. Jennifer Baljko
    July 10, 2012

     Anna – I hear you. It's amazing to me how politicians around EU seem to insist that the problems are rooted in saving the currency and erasing debt. What they are ignoring is the deep structural and cultural issues that also must be addressed when mentioning the economics behind EU stability.

    It's not often I agree with politicians, but I see wisdom in Blair's comment: “Frankly, what it needs is growth plus reform.”  Yes!!! It may sound ironic but growth and reform are like ying and yang, and each is essential  to make a complete solution. Sure, you can reform everything and anything, but how do you replace the broken pieces in a way that makes sense not just for 2012, but for 2020 or some other other near-term milestone? Some of sort growth engine is critical… and I don't just mean old-style capitalism models. Someone smarter than me must have some brillant idea of how to get Europe to work as a whole again.

    FWIW, here in Spain, we have a Prime Minister who got a lot of heat for making ignorant off-the-cuff comments (#SpainisnotUganda). It would be almost comical if Spain wasn't in such a sad state (we have more than 24% unemployment here – how can any Western country and the fourth-largest EU member have such an atrocious number if it didn't have major structural problems that austerity measures will simply not fix?!?). From where I'm sitting and from the comparison I see in this BBC chart, maybe some of these developing regions could offer the EU some advice 😉

     

  15. Jennifer Baljko
    July 10, 2012

    Jacob – I think you're probably right abt the Galaxy's short-term leadership position in Europe. It's been the case for mobile makers for some time now and the Android-Apple-Amazon competition is not something to take lightly.

  16. Mr. Roques
    July 11, 2012

    Well, thats hard to believe … isn't the Samsung SII banned from several European markets? (due to patent wars).

    How fragile is Europe? I don't think electronics is going to help them recover, their issues are deeper than that.

  17. SunitaT
    July 12, 2012

    But I don't think that may be the case for atleast next 2-3 quarters, due to the launch of low cost Google Nexus 7, Amazon Kindle, MS Surface etc.

    @Jacob, very true. There are so many new tablets being launched, I think the end user is confused. Infact I am planning to buy one tablet myself but not sure which one to buy, so its better to wait  for sometime, read the reviews and then make the purchase decision. 

  18. SunitaT
    July 12, 2012

    the Samsung SII banned from several European markets?

    @Mr. Roques, Recently US court lifted the ban on Samsung Galaxy 7 so am sure Smasung is targetting Europe next.   Samsung will do some updates to its existing models so that it can re-enter European market.

  19. Daniel
    July 16, 2012

    Tirlapur, now also there are lots of low cost tablets in markets for pricing range of less than 100 Euros, but nothing from standard companies. So if something from standard companies like Google, Amazon etc, it can have a greater momentum.

  20. Mr. Roques
    August 25, 2012

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