Out of recession: a matter of consumer confidence or GDP growth?

August 2011

ACNIELSEN ROMANIA S.R.L.

Which would be the best indicator to measure sorting out from recession? We used to say that the economy has grown fuelled by discretionary spending, growth that was much in line with consumers’ confidence in the future, in general.

was writing, in the previous issue of this report that it remains to be seen if beginning of 2011 brings out a rise in Romanians’ confidence, after an all time low index at the end of last year. Hopes were not addressed and the confidence index, measured by Nielsen, confirmed a further decreasing trend in the population’s perceptions on their mid term future.

The number of Romanian respondents expressing pessimism and concern regarding their personal future almost doubled in the first quarter of 2011, compared to the beginning of 2010. Consequently, the Consumer Confidence Index reached a new all time low in Q1 2011, to 46 points, down from 54 points at the end of last year.

So, apparently, what people feel and what GDP says are two different stories, judging by the fact that this main economic indicator has risen in the case of Romania for the last two consecutive quarters (+0,1% in Q4 2010 vs Q3 2010; +0,7% in Q1 2011, vs Q4 2010).

 

Job prospects

But let’s dive a little into what generated this low index. The Consumer Confidence Index measured globally by Nielsen comprises three main issues: perception of local job prospects and of personal finance over the next 12 months and perception of good/bad time for people to buy things wanted or needed at this moment.

Jobs prospects in the next 12 months seems to worry Romanians the most, with 53% of on-line respondents saying that local job prospects is “bad” and with another 36% describing it as “not so good”. It is interesting to note that at the beginning of 2010 36% of respondents said job prospects was “bad”, percentage that jumped over 50% (53%) towards the beginning of this year. So, the situation rapidly deteriorated in consumers’ minds and they expressed it as such in a declining confidence index.

 

State of personal finance

Romanians’ perception on the state of their personal finance for 2011 reflects another low level of pessimism. Over a third of respondents (36%) consider that the state of their personal finance will be “bad” over the next 12 months, with another 40% seeing it as “not so good”. Again, the percentage of respondents with a gloomy perspective over their wallet health increased rapidly during last year. The main increase, compared to Q 1 2010 - occurred among those seeing their finance perspective as “bad”, from 14% to 36%, at the tremendous expense of those responding with “not so good” and “good”.

 

Good/bad time to buy things needed/wanted

Definitely a bad time to buy things needed for almost half of Romanian respondents (49%), while only a quarter of them said the same thing at the beginning of 2010. The worsening was again dramatic towards mid last year and kept going till now.

Moreover, a third of Romanian respondents (36%) say that after covering essential living expenses they have no spare cash, while another quarter (33%) say that they have to pay off debts/credit cards/loans. So, we can conclude that over half of the respondents have a hard time managing their family budgets and even harder compared to end last year (31% - no spare cash, 37% paying off debts). Still, 19% of the respondents say they have some spare money to put into savings, but this compared to 23% in the previous quarter.

 

Job security – the biggest concern

We have seen that job prospects is bad over the next year for more then half of the Romanian respondents and this indicator was the one weighing heavily in the overall confidence index dropdown. An unwanted confirmation that the local economy still has a long way to go is consumers’ biggest concerns. In our case this is job security, a worry expressed by 23% of respondents. In a close connection, the second biggest worry over the next six months is the possibility to pay debts (16%) and the raise in the utility bills (14%).

 

The moment of truth

A staggering 86% of respondents think that Romania is in recession at this moment (Q1 2011), with 71% saying that it will remain there for the next 12 months. If one wants to see the good part of the news this is that people were more pessimistic at the end of last year (89% and 79%, respectively). Thus, in a similar proportion, people have changed the way they spend in order to save of household budgets. Clothes were the first sacrificed (76%), followed by out-of-home entertainment (62%), savings on gas / electricity and vacations / short holiday breaks (56% of respondents each). The top five is completed by delays in upgrading technology, a measure mentioned by 49% of respondents. This top was rather similar over past quarters, variations being noticeable in the proportion of respondents, which usually increased from quarter to quarter. The first quarter of this year came with an ease of these proportions, though percentages of those taking actions to save money still being quite high.

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