For the second year running, Eurogroup Consulting publishes a study on consumer credit in 2019. This edition offers an analysis of the trend and outlook for the European market. It also focuses on five main countries: France, Germany, the UK, Italy and Spain.
Another year of growth for the consumer credit market in 2019
2018 marked a milestone in the evolution of the European consumer credit market.
In fact, total average outstandings in European Union countries exceeded their pre-crisis level by 38 billion euros, reaching 1,075 billion euros. This is the first time since the start of the 2008 financial and economic crisis.
Two factors have contributed to this long-term market trend. On the one hand, a favorable recovery cycle in certain economies has had a direct impact. This is the case, for example, in Germany (18% of the European market, 22 billion euros of growth in outstandings since 2008), Poland (4% of the market, but 19 billion euros of growth in 10 years) and Sweden (2% of the market, 9 billion euros of growth). On the other hand, some major markets proved resilient in a less buoyant economic climate. Italy (12% of the European market) grew by almost 27 billion euros, while France (16% of the market) grew by almost 16 billion euros. This performance offset the decline in certain markets. Foremost among these was the United Kingdom (23% of the market), which declined by 12 billion euros over the period.
More recently, loans for the purchase of new or used vehicles have largely fuelled the dynamic new loan production seen in Europe over the past 5 years. Revolving credit, the historic driving force behind consumer credit, is also fuelling this dynamic. In most of Europe's major markets, revolving credit is stabilizing after a temporary drop in production due to tighter regulations.
A mixed picture for the 5 main European countries
However, these general observations need to be qualified for each of the 5 largest consumer credit markets in Europe. These are, in order of importance, the UK, Germany, France, Italy and Spain. Together, they account for 69% of the European Union's total outstanding loans.
Germany
Germany, is characterized by a buoyant macroeconomic context and a healthy household financial situation in 2018. This situation is conducive to growth in consumer credit production, which is accelerating in the first half of 2019.
France
The French market is completing a period of post-crisis recovery, based on growth in long-term financing. However, uncertainties about its future are looming. This is evidenced by the slower pace of production in the first half of 2019.
Italy
The persistence of a sluggish economic climate for over 10 years in Italy has not hampered the vigorous market growth observed over the past 5 years in the consumer credit market. Growth is driven by short-term financing. The first half of 2019, however, shows a slowdown in growth.
Spain
The same is true of Spain. Over the past four years, short-term financing has fuelled the market's very strong growth. However, this trend seems to be slowing down in the first 6 months of 2019.
United Kingdom
The UK market is holding up well, with moderate growth in outstandings in 2018. Indeed, the latter has been affected by an uncertain economic context since the Brexit referendum. This trend, boosted by timid growth in short-term loan production, nevertheless seems to be running out of steam in 2019. With this in mind, there was a drop in production in the first half of the year compared with 2018.
The contribution of automotive financing development
The development of automobile financing has contributed in large part to the dynamic observed over the last 5 years. However, the picture is mixed across the five main European countries. National disparities can also be seen in the growth drivers of the automotive financing business.
Germany
Car finance production accounts for half of total production in Germany. Growth in this segment (+9.51TP3Q) is driven by used vehicles. In contrast, one out of every two new passenger cars is now financed by leasing.
France
Production of automotive financing in France is in line with the European average. It accounts for a third of new loan production. Nearly three-quarters of new private vehicles are financed through leasing arrangements. The used vehicle segment is driving growth in the car financing market (+12%), both in terms of loans and leasing.
Italy
In Italy, automotive financing accounted for just 8% of financing production in 2018. Despite a fall in registrations, the market grew by 7.7%. This is due to the strong growth in loans for the purchase of used vehicles. The share of leasing formulas for private customers remains marginal, but is growing.
Spain
As in France, the Spanish automotive financing segment accounts for a third of new loan production. As in Italy, leasing of new vehicles to private customers is marginal. In fact, two-thirds of new private vehicles registered in 2018 were financed by credit. This enabled the market to grow by 19.81TP3Q, notably due to the very strong growth in used vehicle financing.
United Kingdom
In the UK, the practice of leasing vehicles is now widely accepted. Two-thirds of new and used vehicles registered in 2018 were financed in this way. This helps to give the car financing segment a significant place in total new loan production (over 40% of new loans). Against a backdrop of falling vehicle registrations, financing for used vehicles took over from financing for new vehicles. They enabled the market to post growth of 5%.
European consumer credit market set for moderate growth through to 2021
Reflecting the benchmark macroeconomic scenarios to which it is strongly correlated, the European consumer credit market is set for moderate growth over the coming years. It will also be highly sensitive to developments in each of the five largest markets. First and foremost, Germany and the United Kingdom, which together account for over 40% of the European Union's outstanding loans.
This growth assumption is conditioned by the temporary nature of the German economic slowdown. Its effects are temporarily offset by robust private consumption, enabled by the financial solidity of households. Growth in the European market will also largely depend on the reaction of British household consumption to the Brexit. However, a cautious attitude is anticipated. This would suggest very moderate market growth, supported mainly by credit card loans. Finally, in an uncertain macroeconomic context, the sustainability of expansions in the French and Italian consumer credit markets seems to be in doubt. The same applies to the Spanish recovery, which appears to be in doubt, as evidenced by the first results for 2019.
