European economic conditions

Economic growth has been strong but is cooling across Europe hampered by a rising Euro and weaker global growth. Unemployment has fallen to a 25 year low, causing a risk of increasing wages in most countries, hence putting pressure on inflation. Most notably, in October Germany has seen a surge of annual inflation to 3.00%. The ECB will probably keep their base rate on hold, despite demands of European politicians for an ease in the monetary policy.

GDP growth in the Eurozone, Netherlands and Hungary for 2008 is forecast at 2.30%, 2.40% and 3.00% respectively. Although this is lower than the previous year, economic fundamentals remain good, indicating a slow down in growth as opposed to a recession. Most business and consumer confidence indicators remain at relatively high levels.

Consumer spending should remain the main driver of growth in 2008, as improving prospects in the labour market and a progressive fall of inflation from Q1 2008 help to improve confidence. Consumer spending in the Eurozone, Netherlands and Hungary is expected to grow by 2.20%, 1.90% and 0.90% respectively. It is worth noting that European consumers generally have a much lower level of personal debt compared to consumers in the UK and the US and are therefore much less affected by difficulties in the credit market.