Hard on the heels of the FLA’s recent report stating that new asset finance business grew by 9% to almost £1.7 billion in January 2014, compared with the same month last year, Richard Ryan, a Partner at Invigors EMEA, part of The Alta Group has recently painted a less rosy picture of the European leasing scene.
According to Ryan, after shrinking slightly in 2012 in response to the eurozone crisis, GDP in the European Union (EU) was flat last year and is forecast to grow by a rather anaemic 1.5% in 2014 and 2.0% next year, according to the latest data from the European Commission.
And currently the outlook is further clouded by worries over potential deflation in the eurozone together with poor corporate earnings growth which, when combined with a strong euro, does not bode well for either investment or export-driven growth.
The European leasing industry has largely reflected this rather lacklustre performance to date. New businesses volumes for equipment and vehicle finance were flat in 2012 and appeared to have 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.
While we wait for full year European figures to be published for 2013, it seems that some major countries have been particularly poor performers. New business shrank by 3.4% in France for the year while, in the first half of 2013, volumes fell by 13% in Italy and 17% in Spain. Even Germany, the economic powerhouse of Europe, has seen no growth in leasing for the past two years. It appears that overall equipment and vehicle leasing volumes in Europe have remained at least 15% below pre-crisis levels.
However Ryan continues to state that while the overall outlook may not appear particularly inspiring, there are however grounds for optimism. Not all countries have seen their local leasing sector perform 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.
Of the major countries, the UK has been a relatively strong performer. Data from the UK’s Finance & Leasing Association (FLA) showed that, after a slow recovery from recession in 2010 and 2011, growth in new business volumes accelerated to 4.1% in 2012 and remained at 3.4% last year. Based on GDP forecasts for 2014 ranging from 2.5% (Eurostat) to 3.4% (Bank of England) we would expect equivalent growth in the leasing market of 9-13%, numbers not seen since the heady days of 2006-7 though, in truth, new business growth in the UK has tended to undershoot this trend line recently.
More recent indicators suggest that the recovery is becoming more broadly based at a European level. The most recent Leaseurope/Invigors business confidence survey, undertaken in December last year, shows a sharp improvement in industry sentiment in terms of expectations for the first half of 2014.
Bullish expectations for growth
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 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.
You can read Richard Ryan’s full article. For more information about competitive UK leasing deals, conatct WestWon on Tel:01494 611 456.