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London (November 1, 2010) - In the run-up to the launch of the 2010 Genworth Index, a measure of consumer financial vulnerability in households across 18 major countries; specialist insurer Genworth Financial has commissioned Oxford Economics to assess the first three waves of the annual study, to examine and identify the predictive power of the Index.

The new analysis reveals that the Index is a key indicator of households’ confidence in the economy, which is itself strongly correlated with the business cycle. The Index scores indicate that the global recession triggered by the financial crisis was anticipated by households in 2007 and 2008. Moving into 2009, the scores also suggest that households were able to identify the subsequent different recovery paths across Europe.

Oxford Economics’ analysis shows there is a strong link between the Index results and shifts in unemployment in those regions, indicating that job security is the key link to financial vulnerability.

Incomes, and the cost of borrowing, have in contrast not affected consumers’ feelings in the same way as concerns about job security. Government spending also seems to have had minimal impact to people’s everyday lives. Whilst budget deficits, and government spending, supported the major European economies in 2008-2009, they did not boost consumer perceptions of financial security. This resulted in Index scores and GDP taking different paths.

The UK and Ireland
In the UK, the beginning of the recession seems to have taken households by surprise. In the 2008 Index, taken by the time the private sector had realised the seriousness of the crisis, the level of financial vulnerability rose by 42 points – one of the highest rises on record. In 2009, whilst the level of vulnerability dropped, the elevated level compared to 2007 shows that persistently high unemployment continued to make itself felt. The Index demonstrates that since 2007, there has been a major deterioration in the financial security of UK consumers with the number of households classified as ‘vulnerable’ having almost trebled, while the financially secure group has halved

In Ireland, huge rises in the 2008 and 2009 Indices were accurately matched by falling consumption, rising unemployment and a collapse in GDP growth. In contrast to the rest of Europe, which saw the first signs of recovery in 2009, Ireland’s vulnerability level continued to rise, showing an appreciation of the true scale of the debt crisis.

The Scandinavian effect
In all the countries surveyed for the Consumer Financial Vulnerability Index, the Scandinavian group stands apart in its resilience from the ravages of the recession. Despite a large public sector and high taxes, which many thought would lead to huge problems, these factors have in fact buffered Scandinavians from feeling vulnerable even in the event they lost their jobs.¹   Generous redundancy packages meant that, even through government stimulus schemes, consumer confidence remained high.

Peter Barrett, senior vice president of lifestyle protection at Genworth Financial, commented: “Genworth Financial is committed to helping more people create financial security around the world and we look forward to sharing the results of 2010 Index with policy makers in the coming weeks. Since the last Index was published there has been massive political change in many countries, the implementation of austerity measures and a continued scarcity of consumer credit. It will be interesting to see how these have contributed to consumer perceptions of vulnerability and security.”

Andrew Goodwin, economist at Oxford Economics, commented: “Our analysis suggests that the Index has a good track record of predicting economic trends.  The Index scores indicate that the current global recession triggered by the financial crisis was anticipated by households in 2007 and 2008.  Moving into 2009, the scores also suggest that households were able to identify the subsequent divergent recovery paths across Europe.”

Click here to read the new analysis by Oxford Economics and the previous Genworth Index reports.

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For further information please contact:
Guy Genney
Genworth Financial
Guy.genney@genworth.com
+44 208 380 3786