If, up until now, you thought the European crisis had been blown out of proportion and that all those warnings about far reaching consequences were unnecessarily pessimistic then it’s time to rethink your position.
Reports released today have taken the situation to a whole new level. Such a frightening level that you may find it necessary to brace yourself. The chocolate is in trouble.
Master chocolatiers (and general bringers of joy) Lindt & Sprungli have cautioned investors that the company could face a potentially stark outlook. In a letter issued to shareholders the company stated that the European debt crisis and the global economic slowdown could hit sales for the remainder of the year. Lindt stated that although overall pre-tax profits were up by 12 per cent ‘increasingly severe government debt levels [and] subdued economic performance’ had negatively impacted the chocolate industry over the course of 2012 and weakening consumer sentiment still continued, particularly in Southern Europe.
Take a deep breath chocolate lovers, there is worse to come. The company, so famous for its little golden bunny, fears that with the euro-zone market so depressed sales may hop off. Lindt also asserted that European circumstances will probably continue to deteriorate: ‘The euro crisis and general economic background conditions seem likely to become still more challenging in the second half of the year with consumer sentiment further impaired in a number of countries.’
It seems that when it comes to making predictions chocolate manufactures are as good as anyone. Ratings agency Moody’s has also forecast a continuing weak position for Europe. Without mentioning the credit ratings of any nation, a new report compiled by the agency stated that when it comes to instating relative stability across the continent the job is only half done. Although the agency felt that by 2013 the situations in Italy, Spain and Portugal could have improved, Moody’s expressed the opinion that many of the structural reforms and fiscal adjustment programmes being implemented in the euro-zone generally will not reach completion for years to come.
Despite earlier deadlines being imposed by the IMF, Moody’s also felt that both Ireland and Greece could need until as late as 2016 to redress the imbalances in their economies. The agency’s analysts have been quoted as saying: ‘Adjustments, both in the periphery and the core, have already taken place – in some cases to a significant degree […] the correction is at best only half way complete’.
They further stressed that ‘A comparison with the crises faced by Sweden and Finland in the 1990s shows that the complete unwinding of the periphery countries’ accumulated imbalances –- which were due to the dis-saving behaviour in their respective domestic private sectors rather than their governments –- may still take several years. The comparison also reinforces the critical importance of structural reforms for the achievement of sustainable gains.’
The report went on to comment that gains had been made in competitiveness across the euro-zone, and that despite staffing cuts some companies have managed to sustain high levels of production: ‘Competitiveness gains in the euro area periphery seem to have come about as a result of improvements in productivity that relied mostly on employment falling faster than output’.
Now that European leaders have returned from their summer break the financial world is waiting for action. And now we know the chocolate could suffer, so are we.
In the first of several high profile political meetings due to take place over the coming weeks, Thursday sees uneasy allies French President Francois Hollande and German Chancellor Angela Merkel convene. Although French officials have voiced the opinion that no new decisions will result from their tryst, many are hoping that by September the next step for the currency bloc will finally be known.
