Monday, 27 October 2008

"Catastrophic" Consumer Confidence

(click for zooming)

"Consumers' confidence in the economy weakened clearly in October. The consumer confidence indicator stood at -0.2 in October, having been 8.1 in September and 8.7 in August. Confidence in the economy was also clearly weaker when compared with one year ago and with the long-term average."

"In October consumers did not consider the time at all favourable for making major purchases or raising a loan, and their plans for doing so decreased. Correspondingly, saving was considered especially worthwhile. Consumers predicted a roughly similar inflation rate for the next 12 months in October as in September
." Statistics Finland

So Clearly we have level not seen since 1993... I suppose it's only the beginning, as we have not seen the worse. People are worrying amid a still begnin economical environment in Finland at a time when unemployment is still low.

From 2009 onward, we will clearly enter in very difficult waters. Unemployement will increase as weak or highly undebted company will go belly up. Financing cost will be higher, putting a break in expansion or making it very risky business.

So 2009 will be recessionary and could see a drop of more than 50% of housing sales.
One proof is one of the component of the consumer confidence, that says "Favourable time to raise a loan", and the answer is -47.1, which is a record low since 1995 and most probably approaching the 1992 real estate crash levels.

The strange thing, is in 1990 we had a finnish banking we have a global banking crisis where all banks, the healthy or the sounds one, are affected directly or indirectly (cost of financing, stock market price, business prospect etc.... etc...)

But there is hope that Finland will manage through this crisis, without large damages - at least on the social front. The growth will be sluggish, but there will still be growth although not in all sectors, and for protracted period of time.

Finland has entered this crisis, somehow better prepared, compared to its Easter European peer. Finland doesn't have a deficit, therefore can ramp up public spending and it has already done so.

Finland is in the European Union, therefore shielded of sharp currency fluctuation with its european partner (although lately the Euro started to weaken agains almost all non european currencies -dollar, yen etc...)...the biggest difference is that they don't have to rise the interest rates in order to defend the currency as it was then in 1990 and as it is currently witnessed in Denmark, Hungary or earlier in Iceland....on the contrary, interest rates are going down and will go down next week when the ECB meets.

All in all, bank will lend less in the year to come at a higher margin and will require higher deposits for housing purchase. It clearly mean that the number of buyer will shrink if not disappear, especially if the economical situation deteriorate. The point here to make is that housing price will have to readjust to the new reality. By how much? About a year ago, I forecasted a 20-30% by 2010-2012. At that time I though it will be the I see it as the minimum. Time have changed, so has the world...

PS: Back in February, I put forward 3 scenarios (Consumer Confidence Analysis Feb 2008) seems that the worse case scenario was realized a little bit earlier than I thought... :

3- The consumer confidence is on free fall, going much lower than the 2001 mild recession. Housing doesn't support any more economic growth instead become a drag. U.S. can't avert a recession and the Fed is struggling to stabilize the economy. It will take 3 years to start seeing good or near potential growth, it's a L shape recovery. Asia recouple with the economical issues seen in the US and Europe

To be compared with today figure ...


Eric said...

Negative New from the West

"Oct. 30 (Bloomberg) -- In the third quarter of 2007, Volvo AB booked 41,970 European orders for new trucks.

Guess how many prospective purchases Volvo, the world's second-biggest maker of heavy rigs, received in the third quarter of this year?

Here's a clue. Picture a highway gridlocked by 41,815 abandoned trucks -- because Volvo's order book got destroyed to the tune of 99.63 percent, with customers signing up for just 155 vehicles in the three-month period, the Gothenburg, Sweden-based company said last week.

The pathogen that has fatally infected swathes of the banking industry is now contaminating non-financial companies. ``We're heading toward the sharpest downturn I've ever seen in Europe,'' said Chief Executive Officer Leif Johansson."

HousingFinland said...

"We're heading toward the sharpest downturn I've ever seen in Europe" said VOLVO CEO Leif Johansson

Only two month ago, I highlighted the "non sense" report by the Financial Ministry, headed by Katainen, saying that unemployment will stay stable if not lower and that the economy and the banking system is sound... So katainen was not talking, he was singing, evn dancing on "Don't worry, be happy" tune, to later retrack back and change is tune to "I'm singing in the rain"..indeed it's pouring ... in all direction, from the Baltics, Russia , Emerging markets and Advanced economies.

So it's was clearly a joke to announce that amid the worse crisis in one or two generation. I suppose it was an election trap, and many fell into it.

People have to wake up to the new reality and understand what is at stake. i.e stop reading Iltasanomat ;->

Policy maker are now aggressively responding in a coordinated way in order to put an end at "once in lifetime" crisis.

Should they fail to do so, the worst will unravel. Not talking about mere house price or stock falling, that's minor. I'm talking of the rise of nationalism, xenophobia, protectionism etc.. that could lead into a social tsunami...but don't fear, we are far from that, although we have the ingredients that.

I'm pretty confident that policy makers have learned the lessons from the past and will do what is necessary to contain "the" crisis and allow economies to go back to a more moderate albeit healthy growth.

Andrew said...

Housing Finland

"the rise of nationalism, xenophobia, protectionism etc.. that could lead into a social tsunami...but don't fear"

"I'm pretty confident that policy makers have learned the lessons from the past "

I was only thinking this morning that maybe if the crisis was only accidental and only caused by well meaning, but naive, experiments to avoid recessions (which do after all hurt people), then in the absence of WW3 in the next 10 years, it will be a sign that the New World Order of Global Government has reached a beneficial stage of maturity beyond the post WW1 and post WW2 dreams of ending global conflict, and has now reached a glorious reality which our benevolant leaders can be justifiably proud of. Therefore, rather than being resentful at their interference in our lives, we can instead be greatful for the guidance they give us and be happy to pay our taxes and contribute to our shared society.

After all, unless we ordinary citizens of the world can access the private records of governments and buisinesses around the world we can not really know history like they can, and since our benevelant leaders can lever off centuries of accurately compiled historic economic data that is held in the records of hundreds of banks and the unified government of the world, this *wisdom* is available to attempt to avoid recessions that are known to come like clockwork every 18 years or so.

But will we know if they are wise and beneficial in only 10 years? Will we know *then* that our fears were unjustified? If you do the simple maths, October 1929 + 10 years = October 1939. WW2 did not really become horrible until after 1940:-( And curiously the Federal reserve system that was founded 1 year before WW1, probably led to the booming conditions after WW1 that led to the massive bust of the great depression.

Another view we can believe in is that globalisation and the rampant consumerism it wants to create, and this interconnected government we see now *visibly* attempting to restart the world economy (when it needs to be cleansed by a recession that was avoided years ago) is a fascist dictatorship that does not really know what it is doing and only cares for shorter term corporate profits and continued oil supplies, at any cost, regardless of human suffering.

Another view is that although we see our World via various 'rules' which we have come to believe are true, we cannot use those rules to describe the whole system because actually in reality there is no rules based system existing that is defined *only* by rules.

So instead of orderly construction the World we live in just exists as a whole 'thing' created by chaos.

As a friend of mine often says, Andrew why do you make it bad? Make it good! It *is* all good. It is 'what is'. What possible benefit can there be to you in making it bad? *Make* it good!

Andrew said...

Do you like reaching for young tempting emerging bottoms?

Eric said...

If you have 47 minutes to spare you should checkout this clip of "Dr. Doom" (a.k.a. Nouriel Roubini)

Eric said...

That didn't "publish" very well:

You'll just have to paste the URL in sections. Sorry!

HousingFinland said...

Thanks Eric for the information.

To Andrew:
"I was only thinking this morning that maybe if the crisis was only accidental and only caused by well meaning, but naive, experiments to avoid recessions (which do after all hurt people)"

For sure they have been warning for such event to happen for the past 3 years at least, especially the ECB, using the words of Jean Claude Trichet "disorderly unwinding of global economic imbalances" has been in the statement of the ECB for quite long time.

I think they just underestimated the extend of the damage and contagion. I suppose the system was quite opaque and they didn't have correct information concerning non regulated Financial institution and the massive leverage they had....

Now, they are trying to avoid a depression since a recession is unavoidable...or at least to make it as short as possible, the longer it last, the greater is the uncertainty on many fronts...

HousingFinland said...

"Another view we can believe in is that globalisation and the rampant consumerism it wants to create"

That the Neo liberalism, pushed by Greenspan, Bush and co.

Open markets, free trade, lets competition lower price and increase the meantime the condition of the majority of workers have see their purchasing power plummet or eaten by inflation while CEO, shareholders, executive have seen their remunerationsky rocket 100 to 1000 time.

Trees can't grow to the sky, and so is the gap between the middle class and the upper class. This gap was tentatively accomodated with more and more credit, debt burden...unfortunately this has today collapsed...