FREE SUBSCRIPTION Includes: The Advisor Daily eBlast + Exclusive Content + Professional Network Membership: JOIN NOW LOGIN
Skip Navigation LinksHome / Blogs / Read Blog

Print

Europe -- Poised for Recovery?

March 04, 2014, 03:00 PM
Related: The Alta Group

After being battered by recession, banking and sovereign debt crises, it's all too easy to write Europe off as a spent force. Certainly as far as the leasing industry is concerned, the figures support this view, new businesses volumes for equipment and vehicle finance were flat in 2012 and showed little growth last year. Real estate leasing fell by nearly a third in 2012, though this accounts for a relatively small share of the total.

Some major countries have been particularly poor performers, new business shrank by 13% in Italy in the first half of 2013 and 17% in Spain while France declined by 5% over the same period. Even Germany, the economic powerhouse of Europe, is estimated to have seen virtually no growth in leasing last year. And overall equipment and vehicle leasing volumes in Europe have remained at least 15% below pre-crisis levels.

Much of this contraction can be attributed to banks deleveraging and in some cases, withdrawing completely from non-domestic markets. This has been particularly true for some banks which received government bail-outs or have been partially nationalized and have had to refocus their business on their home countries. Other factors include declining sales in the European motor industry which has contracted from 18.3 million new vehicles in 2007 to 13.5 million last year, a fall of over 26%.

Despite this gloomy picture, there are grounds for optimism. Not all countries have seen leasing performing poorly. Of the more mature markets, Denmark, Sweden and the UK have all seen significant growth, while some of the developing markets in Eastern Europe, which were badly hit by recession, are also recovering strongly.

More recent indicators suggest that the recovery is becoming more broadly based. The Alta Group’s European arm, Invigors, in conjunction with Leaseurope, conducts regular business confidence surveys of asset finance professionals across Europe. The most recent survey, undertaken in December last year, shows a sharp improvement in industry sentiment in terms of expectations for the first half of 2014.

Expectations of new business growth are particularly bullish. Nearly three-quarters of those surveyed anticipated growth in new business this year, up from 54% in the previous survey last June. This is the biggest jump in sentiment since 2010. The proportion of respondents forecasting no change fell to 16% in December while the number predicting a fall in new business has halved to just 10%.

Those taking part in the survey also expect that this growth will be reflected in the bottom line. Over 60% anticipated that net profit in their organizations would increase over the next six months, an increase from just over 50% previously, while only 15% believed that net profit will be squeezed. Overall, nearly two-thirds of respondents felt more optimistic about the prospects for their business, nearly double the level recorded in the previous survey!

Looking at the latest figures available from Leaseurope, it appears that this optimism is not necessarily misplaced. The Leaseurope Index is a separate survey that tracks key performance indicators (KPI) covering a sample of 17 European lessors on a quarterly basis. Unlike the confidence survey it is retrospective and tracks actual rather than expected performance. Total new business volumes reported by the sample of leasing companies increased by 13.7% in the Q4/2013 survey, the first significant increase in two years.

Other KPIs also showed marked improvements, for example pre-tax profits for the sample grew by 10% year-on-year while the average profitability ratio increased substantially to 25.8% in Q4/2013, up from 16.3% a year previously.

So what’s behind this turnaround? Obviously the overall improvement in the European economy is the main driving factor, now that worries about the Eurozone sovereign debt crisis have receded and local economies recover from the worst effects of austerity measures. GDP growth for the European Union 27 countries is forecast at just 1.4% this year rising to 2.0% by 2016. That’s unlikely to set the leasing market on fire; we would expect new business volumes to grow by 4.0-7.5% under this scenario, which is modest, even by European standards.

However economic forecasts have recently tended to undershoot the actual outcome. If recovery is faster and GDP growth hits 2.5% to 3.0% over the next two years, then the leasing market growth could reach 10% to 12.5% - - levels not seen since the heady days of 2007.

This is not to say there are no challenges facing the European leasing market; there most certainly are, not least in terms of legislation and regulatory control. There are also significant differences between European players with countries such as the UK demonstrating strong economic and asset finance growth while others such as Spain and Italy are taking longer to turn around. While the European leasing market is unlikely to match the dynamism of Asia or the adaptability of the U.S., it’s nonetheless too soon to write the old girl off yet.

Does this match your experience or perspective of business in Europe right now? We’d welcome your comments! E-mail richard.ryan@invigors.com with your feedback.

Richard Ryan
Partner | Invigors EMEA
Richard Ryan is a partner at Invigors EMEA, part of The Alta Group, a global firm providing management consulting and both strategic and tactical solutions, dedicated to the equipment leasing and finance industry since 1992.

Ryan is a highly experienced marketer and research analyst who is one of the founding partners of Invigors EMEA. He has a background of over thirty years in research and marketing intelligence gained from senior roles in manufacturing, media and communications, information technology, retail finance and asset finance industries. Currently Ryan provides Invigors EMEA clients with a wide range of insightful research, intelligence and forecasting capabilities and is a recognized author of research reports on the asset finance market in Europe.
Comments From Our Members

You must be an Equipment Finance Advisor member to post comments. Login or Join Now.