CWS 3.0: November 30, 2011 - Vol. 3.34

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European Economies Face an Unpredictable 2012

Certainly many of you are in the process of budgeting for next year. It’s never easy planning an annual budget, but 2012 will likely prove more of a conundrum than most. With economists hard-pressed to predict what will happen tomorrow, how is business expected to predict likely revenue and costs 12 months out?

Earlier this month, the European Commission predicted that the euro zone’s economic growth will slow sharply next year. Overall euro zone GDP growth of 1.5 percent in 2011 will slip to 0.5 percent growth in 2012 before moving up again to 1.3 percent in 2013, the commission forecasts. All 17 countries that use the euro saw their growth forecasts lowered for both 2011 and 2012, and those downgraded most severely were Germany to 0.8 percent from 1.9 percent, France to 0.6 percent from 2 percent and the Netherlands to 0.5 percent from 1.7 percent. Adding to the gloom, the Bank of England announced that it now expects U.K. GDP to grow by a mere 1.0 percent next year — half its previous forecast. Mervyn King, the Bank’s governor, said he expected economic growth over the next few quarters to be “markedly weaker” than had been forecast three months ago.

Healthy growth does still exist in Europe, but you’ll have to travel in a northerly direction to find it; Finland is predicted to have 2.5 percent GDP growth in 2012 while the Norwegian economy is on fire, with a healthy 3.1 percent growth. 

New Recession?
In response to the latest forecasts, Economic and Monetary Affairs Commissioner Olli Rehn said that “the recovery in the European Union has now come to a standstill and there is a risk of a new recession unless determined action is taken.” News on employment is just as depressing. “While jobs are increasing in some member states, no real improvement is forecast in the unemployment situation in the EU as a whole,” Rehn said.

Nevertheless, while employment figures have been under pressure in many countries, we do anticipate that there will continue to be reasonable demand for contingent staff next year. Staffing Industry Analysts has recently published its 2012 forecasts for the European staffing markets. While we anticipate a slowdown in growth from 2011, we still expect demand to remain positive even in economies that are perceived to be the most difficult at the moment, such as Italy. In Germany, which has been a beacon of hope in a blighted European economic landscape in 2011, staffing industry growth will soften but this is a symptom of growing skills shortages rather than any slackening in demand.

Of course, it’s this very same uncertainty that is driving demand for contingent labor. Lacking the confidence to hire full-time workers, companies will opt to hire contingents until the economic mist begins to clear and demand becomes more predictable.

Europe’s problems are well documented; unmanageable levels of sovereign debt having been the main focus, especially within Greece and Italy (and to a lesser extent in Spain, Portugal, and Ireland). However, debt is just a symptom of more economic weaknesses such as lack of competitiveness, low productivity, structurally high levels of unemployment, demographic stresses and ineffective tax regimes, to name but a few.

As ever, economies (and stock markets!) are driven by sentiment and there’s no doubt that, at the moment, sentiment cannot see much beyond the fear of Greek default. While no one would rule out worsening conditions in 2012, there are also some glimmers of hope for those of a more optimistic nature:

  • Irish exports growing at 4 percent so far this year
  • New political leadership in Greece, Italy and Spain
  • Volkswagen set to break U.S./Japanese car manufacturing dominance
  • Sharp increase in U.K. corporate profits and retail sales defying predictions
  • Road haulage in Europe (a bellwether for the economy) is enjoying very strong growth rates

So things may be better than expected – or worse! Worryingly, European politicians are failing to reach consensus on how to deal with the economic difficulties. Leaders of the three largest European economies — Germany, the U.K. and France — differ on how to respond to the crisis. Further, their perceptions are colored by differing national perceptions of the role of the European Union itself, calling into question the validity of economic and political union.

Amidst all this uncertainty, those responsible for hiring temporary staff and independent contractors will be more crucial than ever in helping their organizations to stay competitive in 2012. The flexibility contingent staffing provides makes it one of the key strategies for coping with economic surprises, whether they lead to a decrease or an increase in demand.

For these reasons, Staffing Industry Analysts’ next Contingent Workforce Summit in London has been given the theme "Managing a Contingent Workforce in an Uncertain World". For further details on the CWS Summit London, please click here.

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