Drown your deflationary sorrows.

Europeans Too Bummed to Drink, Smoke or Clean

Mark Gilbert is a Bloomberg View columnist and writes editorials on economics, finance and politics. He was London bureau chief for Bloomberg News and is the author of “Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable.”
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Parsing this week's earnings reports from some of the biggest European consumer-goods companies makes for grim reading. The combined lesson from Unilever, British American Tobacco and Heineken is that it will take more than a handful of bond purchases from the European Central Bank to revive the animal spirits required to stop the region from tumbling back into recession.

Unilever, which sells more than$60 billion of consumer goods all around the world annually, said yesterday that revenue in Europe fell 4.3 percent in the third quarter and 1.8 percent during the first nine months of the year.

You know the economy is in trouble when prices of Dove soap, Cornetto ice creams and Domestos cleaner are under pressure. And the outlook, according to the Unilever statement, isn't likely to get any better:

Europe had a difficult quarter as we saw price deflation in many markets such as France, Germany and the United Kingdom. We do not expect any material improvement in our markets for the remainder of the year.

Unilever isn't alone in seeing a slowdown in Europe. Heineken, whose beverages claim to "refresh the parts other beers cannot reach," said earlier this week that its beer volume in Europe declined 3.1 percent in the third quarter, worse than the median forecast among analysts for a 2 percent drop.

Drinkers in the U.K., France, Italy and the Netherlands all cut their consumption, Heineken said in its earnings statement. Wet weather across the region hurt sales in July and August, the Amsterdam-based brewer said. But an improvement in September's weather didn't help.

And London-based British American Tobacco, which counts Dunhill, Lucky Strike and Pall Mall among its cigarette brands, said this week that unit sales in Western Europe declined to 82 billion in the nine months ended in September from 87 billion in the year-earlier period.

The 5.7 percent drop compares with a 0.7 percent increase in the Asia-Pacific region, a 2 percent decrease in the Americas and unchanged sales in eastern Europe, the Middle East and Africa. That suggests the lackluster core of the euro-zone economy, rather than a shift in smoking habits, dragged down sales: "The trading environment remains challenging due to continuing pressure on consumer disposable income worldwide and the slow economic recovery in Western Europe," the company said.

With consumers holding back on spending, and many companies responding with lower prices, the deflationary spiral that is the stuff of central banking nightmares is stalking Europe. No wonder European stocks, as measured by the Stoxx Europe 600 Index, have underperformed the Standard & Poor's 500 Index by more than 14 percent this year on a total return basis, once currency effects are stripped out:

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To contact the author on this story:
Mark Gilbert at magilbert@bloomberg.net

To contact the editor on this story:
James Greiff at jgreiff@bloomberg.net