2009 Pre-Budget Report Commentary

Beware broadbrush statements about European economic recovery, the devil is in the detail

Alistair Darling has not done much to address the indebtedness of the UK economy and paints a fairly rosy picture of Europe. He does however point out that Eastern European economies appear to be suffering more than Western Europe. Here he must surely be thinking of the likes of Romania, when the IMF recalled that in 2008 and 2009 three EU members—Hungary, Latvia, and Romania—faced balance of payments crisis so severe that they required external financial assistance. In each case assistance was provided under a joint IMF/EU support program.

Herein lies the issue with broad brush statements and averages. Although Western European countries seem to be pulling through the recession, there are some which have been suffering markedly. Only this week it was announced that Fitch, the ratings agency is downgrading Greece’s status. Greece borrows 13% of GDP, much like UK, although Greece’s debt is  predicted to rise to over 130% GDP by 2011, which Darling does not seem to be predicting for the UK economy.

And other Western countries such as Spain have been notably suffering. Although most other European Union countries climbed out of recession in the 3rd quarter, Spain’s economy shrank, for the 6th quarter in a row. Yet a 0.3% drop in GDP was barely as big as Britain’s.

Due to a heavy reliance on the property market, Spain’s current 19% unemployment rate is high. It reflects how the property market has changed since the heady days of 2007. Some 900,000 of the new unemployed are largely unskilled construction workers.

However the rest of the EU buys 2/3s of Spanish exports. The economy may be buoyed by the recovery in France and Germany for a while.  

And again in Eastern Europe Poland disproves this average as the only European Union (EU) country, including the Western European Countries, which has achieved positive economic growth in the second quarter of the year, with Gross Domestic Product (GDP) rising to 1.4 per cent year-on-year in quarter two and predicted to top two per cent in 2010,

So what does all this mean for property markets in Europe?

Well according to a recent Barclays Global Survey, property investment is to rise to 30% of average portfolio for wealthy individuals.

“The global recession pushed down commercial and residential real estate prices in every region except Asia…... Belief that properties are now undervalued was the second most common reason cited for increasing investment.” Wealthy individuals “ plan to increase their property holdings because they foresee better long-term returns than from stocks and bonds”,

The richer the individual, the greater the proportion of wealth is placed in real estate, the survey found.

So it is time to seek bargains, but remember, that if a country was having difficulty before the recession, recovery is not going to rectify that situation. So always satisfy yourself that the economic fundamentals are in place in the country you may be interested in investing in.

Louise Reynolds
Property Venture^®

^{Posted 11th December '09} 

Property Venture^® is an independent, UK-based agent. We help time-strapped investors and holiday home purchasers, buy abroad by guiding through the buying process, so reducing the hassle. We visit the countries you buy in, so we can offer common-sense, grounded advice. Overseas members of NAEA. This means we have been subjected to the membership criteria and have signed up to follow the professional Code of Conduct established to help you, the potential buyer or investor, buy property with confidence