Europeans are optimistic despite multiple crises

A better-than-expected decline in the German consumer price index helped lift European stocks and government bonds to one of the best starts to the year on record



Berlin's TV tower is reflected in the window of a clothing store displaying a sale sign at Alexanderplatz. — AFP
Berlin's TV tower is reflected in the window of a clothing store displaying a sale sign at Alexanderplatz. — AFP

By Jon Van Housen and Mariella Radaelli

Published: Mon 23 Jan 2023, 10:19 PM

The soaring cost of living is the most pressing worry for 93 per cent of Europeans, a just-released survey undertaken for the European Parliament found.

Almost half of the respondents in more than 26,000 face-to-face interviews conducted late last year in all 27 member states say that their standard of living has already been reduced due to impacts from the Covid-19 pandemic and the conflict in Ukraine that resulted in skyrocketing energy costs. A further 39 per cent of those queried say their standard of living has not yet been reduced but expect it will be in the year to come.

The poll contends there a “polycrisis mood” across the continent, yet 57 per cent of respondents are optimistic about the European Union’s future and 62 percent see EU membership as a “good thing”, one of the highest results on record since 2007.

After warm weather eased some concerns about energy prices and economic indicators improve a bit, are those developments and others enough for greater optimism about the year ahead?

In the United Kingdom, last year’s many challenges follow on from the effects of the historic Brexit breakup with the EU. Economists were warning of recession, but with final statistics on economic activity coming in, it appears GDP notched up a bit late in the year.

An increase in November was driven by 2 per cent growth in administrative and support activities, with employment services growing 2.1 per cent, according to data from the nation’s Office for National Statistics. Overall, services account for about 80 per cent of the British economy.

The German economy ended the year up 1.9 per cent, down from a 2.6 per cent expansion in 2021, but slightly above projections. Europe's largest economy faced stubbornly high inflation, rising borrowing costs, supply constraints and a shortage of skilled workers. Services drove the modest expansion as the manufacturing sector stagnated and construction activity contracted for a second year.

Ruth Brand, head of the German Federal Statistical Office, said there are continuing “serious material shortages and delivery bottlenecks, massively rising prices – for example for food – as well as skilled labor shortages and the continuing though fading Covid-19 pandemic”. She says although difficult conditions persist, “the German economy as a whole managed to perform well in 2022”.

Showing a sharp disconnect between political considerations and personal lives, a majority of participants in the European Parliament poll say things in their home countries are going in the “wrong direction”, yet 63 per cent claim things in their personal lives are going in the “right direction”.

Residents of Nordic countries are the most comfortable with their current income – 87 per cent in Sweden, 86 per cent in Denmark and 84 per cent in Finland – while only 21 per cent in Greece and Bulgaria are satisfied with their earnings.

In mainland Europe, optimism is growing that inflation has peaked. A better-than-expected decline in the German consumer price index helped lift European stocks and government bonds to one of the best starts to the year on record. German companies are reporting easing in supply chain bottlenecks while employment figures continue to be robust.

Inflation in Spain and France also fell more than expected, suggesting the EU-wide figure could drop lower than the forecast 9.7 per cent.

A mood of optimism was palpable at the recently concluded World Economic Forum in Davos, Switzerland. The gathering of some 2,500 delegates, business executives and others – perhaps the largest gathering of global decision-makers of the year – was back in full force for the first time since the Covid-19 pandemic began.

The representatives from global business, government, civil society, media and academia once again converged on the Swiss ski resort to attend sessions designed to spark discussions around the most pressing issues of our time – and there are plenty of those.

The positive mood at Davos was variously described as gentle, tentative or qualified expressions of optimism as the conference concluded. Reasons for a more sanguine outlook include China’s lifting of its zero-Covid policy, lower energy prices, easing inflation, improvements in supply chains and views that the pandemic will ease despite some wintertime surges.

Yet some CEOs voiced more pessimistic opinions. Matthew Prince, CEO of the internet security and content delivery platform Cloudflare, even called the “tenor of optimism” at the forum “bizarre” as his company prepares for a prolonged downturn.

Yet adding some additional optimism to the start of the year, German Chancellor Olaf Scholz says he believes the EU and US can reach a trade truce in the coming months to prevent discrimination against European companies due to American subsidies.

Kristilina Georgieva, managing director of the International Monetary Fund, cautiously joined the Davos optimism, but noted the outlook for the world economy was merely “less bad than we feared a couple of months ago”.

“Less bad doesn’t mean good,” she warned “Be careful not to get on the other side of the spectrum from being too pessimistic to being too optimistic.”

Yet experts also know that sentiment in markets, investors and consumers is a key component to economic well-being.

After three years of dire messages about health, conflict and geopolitical challenges, it’s uplifting to hear even cautious business leaders say a better day has dawned in Europe. Whatever comes, let’s bask in that sunshine for a bit. - Jon Van Housen and Mariella Radaelli are international veteran journalists based in Italy


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