The Atlanta Journal-Constitution
As Europe reopens, consumers start spending
But whether people will keep buying remains to be seen.
PARIS — Clémentine Sebert buzzed through an Ikea furniture store during her lunch break, filling her cart with decorative cushions, a new nightstand, lamps and a small rug. After being cooped up for two months during France’s coronavirus quarantine, she was back to work at the firm where she is a legal counselor — and ready to spend.
“I’m not so worried about the future,” said Sebert, who returned to her office last month after France’s lockdown was lifted and was settling into a new rental apartment.
Because of a government program to support businesses during the crisis, Sebert kept her job and most of her pay while on furlough — a big help in paying for the new purchases. “If I had been unemployed, I wouldn’t be spending as much,” she said.
Consumers in Europe are going on a shopping spree as their economies reopen, offering hope that a fragile recovery from a deep pandemic-induced recession may be taking hold.
Retail sales in the eurozone, which plunged to record lows while millions were confined, surged 17.8% in May compared with the month before, as people fanned out to buy furniture, electronics, clothing and computer equipment, Europe’s statistics agency reported last week. The biggest gains are in France and Germany, where spending has rebounded to near pre-confinement levels.
The current binge has doused some worries that Europeans might feel too shaken to spend again, as happened in China, where many chose to curtail expenditures after losing their jobs or having their pay slashed.
“Consumers are driving the rebound across much of Europe more than expected,” said Holger Schmieding, chief economist of Berenberg Bank. “There is a relief that lockdowns are over.”
But whether people will keep opening their wallets remains to be seen. Spending is still around 7% lower than where it was before the pandemic hit. Earlier this month the European Commission warned that the economy would contract 8.7% in the eurozone this year, a significantly deeper recession than forecast just two months ago. The commission’s study assumed no second wave of coronavirus that shutters Europe’s economies — a possibility it described as a “major risk.”
For now, at least, patrons have not stopped flocking to socially distanced sidewalk tables at cafes and bistros in France. Dutch flower and plant suppliers are reporting record demand as shoppers crowd do-it-yourself stores around Europe to beautify their homes. In Germany, families are heading to malls to buy new appliances after the government lowered the value-added tax to stimulate sales.
Consumer spending is crucial to Europe’s revival, accounting for more than half of its economic activity. During previous downturns, business investment and exports tended to be the main drivers of a rebound. But the closure of borders and vast parts of the economy in the coronavirus crisis has hit capital spending and weakened trade, making a business-driven recovery uncertain.
Governments are spending billions of euros to limit the damage, mainly by focusing on policies to limit mass unemployment. France, Germany, Denmark, Italy and most of Europe are now extending through the end of the year short-time work support schemes, like the one that helped Sebert continue to draw a paycheck.
Sebert was able to collect 80% of her salary while furloughed during confinement, as one of around 14 million workers in France who benefited from the state-backed program. Though support in other countries was less generous, the programs have helped cushion income losses for an estimated 60 million people around Europe.
“This is a government-subsidized recovery in spending, but that is exactly the intention,” said Bert Colijn, senior eurozone economist at ING. “If this hadn’t happened, the countereffect would be disastrous. It’s a confirmation that the policy is working as intended.”
The spending wave is already helping to tilt some sectors toward recovery. At Adecco, one of Europe’s largest temporary recruiting agencies, demand for retail and restaurant workers — many of whom lost work during lockdowns — has rebounded sharply since the middle of May.
“Consumption is returning probably due to the fact that the government put a lot of money on the table,” said Christophe Catoir, Adecco’s president for France and northern Europe. As a result, he added, “hiring is coming back.”
Some of the splurge is no surprise: People couldn’t shop or dine out during confinements, and now they can.
Still, with government support programs in place, consumer spending could return by the end of this year to nearly what it was before the lockdowns, said Schmieding, who has now revised his outlook for the recession from disastrous to merely bad. “For the second quarter, we now pencil in a plunge of 13% instead of 15.1% for the eurozone,” he said.
Those are still grim figures, and economists don’t expect a return to normal levels until health risks abate, making a full economic recovery unlikely until a vaccine for the coronavirus is found.
Mindful of the risks, consumers are remaining cautious. Despite their splurging since lockdowns have eased, consumers have also socked away savings at a record rate, causing bank deposits across the continent to jump, in case things take another turn for the worse. The European Commission expects this increase in savings, which could otherwise be stimulating a recovery, to keep rising.
And not everyone has been able to take advantage of income-supporting furlough programs. Lockdowns and business closures have hit the most vulnerable workers in Europe especially hard, according to a report last week by the Organization for Economic Cooperation and Development.
Hundreds of thousands of people, especially the self-employed and those on temporary or part-time contracts, have been exposed to steep income losses. They won’t be able to join the ranks of consumers who have the disposable income to support a recovery.
Many are in countries along Europe’s southern rim where the coronavirus hit hard — especially in Spain and Italy — leading to long quarantine periods that have proved a drag on prospects for economic recovery.
“We’re seeing that there’s an ugly divide opening between countries that had a harsher lockdown and the ones that didn’t,” said Colijn of ING. “It puts the southern periphery at risk of a prolonged slump compared to their northern neighbors.”