As a range of companies release their results, it’s clear that Europe’s debt problems are beginning to hit firms.
Anglo-Swedish drugmaker, AstraZeneca (NYSE: AZN), is cutting another 7,300 jobs worldwide – 12% of its workforce – as it looks to make extra savings.
It expects earnings to fall by 14% to 18% this year, as drug patents expire and governments in Europe and the United States squeeze prices.
While Unilever’s (NYSE: UN) 2011 results were in-line with forecasts, it expects sales to remain flat in Europe and North America in 2012 – a view that’s shared by appliance maker, Electrolux.
Nick Beecroft from Saxo Bank says the results are a sign that Europe’s debt woes are beginning to have an effect on the “real economy,” as companies and consumers cut their spending:
“It’s quite chilling in a sense because one might expect a retrenchment with regard to white goods. People may delay buying a new washing machine, but it’s quite chilling when it comes to Unilever’s products… almost the necessities of life… that there may be a retrenchment there, as well. Less toothpaste on each brush, possibly.”
Two years into its debt crisis, Europe still hasn’t found a solution to its problems.
The European Central Bank undoubtedly has eased fears about bank liquidity with its three-year loans, and this extra money has seen France’s and Spain’s borrowing costs fall.
But unemployment on the continent has hit a new record high. New figures for Spain show a 4% rise in January alone – and there are warnings that frustration with austerity measures could lead to social unrest.
Beecroft believes the fiscal union will eventually solve the debt crisis, but there’s a lot of pain to endure first:
“We fear that before the end-game, we’ll have another crisis come to a crescendo, probably in the second or third quarter, maybe precipitated by the effects of austerity that we’ve been talking about – social unrest – maybe the suggestion of referenda in various European countries.”
Europe may be moving towards fiscal union, but companies have at least another 12 months of hard times before they get there.