Transporting, heating and compressing with less energy - energy efficiency in industrial processes was the focus of this year's Hannover Fair last week. The innovative technologies needed for this could underpin Germany's prosperity in the years to come, declared Chancellor Angela Merkel.

Despite the economic crisis, German consumer climate continued to be stable this April, according to market research group Gfk. After a slight drop in the previous month, economic and income expectations were even slightly up. Although consumer propensity to buy declined somewhat, it nevertheless remained at a robust level. The overall indicator is forecasting a value of 2.5 points for May, following a revised value, also of 2.5 points, for April. The the consumer climate index is proving to be surprisingly resilient in the face of all the gloomy predictions.

Factors which increase purchasing power, such as low inflation, lower energy prices and higher pensions, along with some isolated signs signalling a trend reversal by the end of the year, are evidently ensuring that April 2009 has seen a rise in both economic and income expectations. To-date, the propensity to buy has virtually maintained a constant good level which is above average, with only a modest decline. As a result, the consumer climate index is indicating that the consumer climate will remain stable in May. However, the gloomy forecasts last week from the leading financial institutes, which warn that the German economy will shrink by 6% in 2009, are likely to severely test consumer sentiment.

Economic expectations: slightly up

After dropping massively in March this year, the indicator of economic expectations once again climbed 1.6 points in April to stand at its current level of -31.2 points.

While consumers remain very pessimistic, the downward spiral of the indicator which began in the middle of 2007 and continued until the beginning of this year, does seem to be gradually coming to an end. This view is supported by the fact that isolated reports in the media are signaling that the foreseeable future will bring a halt to the downward movement of the economy and that by the end of 2009, at least some degree of economic stabilization is possible. Companies are also assuming that the worst of the economic downturn may be over, and this is substantiated by the current rise in the ifo business climate index. 

Income expectations: up again

After negligible losses last month, income expectations are again up 3.4 points and now stand at -8 points. On this basis, and with the indicator recovering by 12.5 points since reaching its lowest point in January, the general rating for the year 2009 is positive where income expectations are concerned.

One of the main reasons for this development will certainly be the general price stability prevailing in Germany. In March this year, the rate of inflation was just 0.5%, which is attributable in the first instance to the reduced prices for energy and some foods, which added to consumer purchasing power. In addition, it is now clear that pensioners can definitely look forward to a pension increase. From July 1, pensioners living in eastern Germany will receive a 3.4% rise and those in western Germany will be receiving 2.4% more. This, too, will surely have a stabilizing effect on income prospects.  

Propensity to buy: a good level maintained

In April this year, the propensity to buy indicator maintained its good level. Although it has dropped 1.5 points, at its current level of 12.4 points it is still a good 17 points higher than it was at the same time the previous year.

In tandem with moderate price development, the financial incentives contained in economic package II are ensuring that consumer propensity to buy remains constant. Above all, the scrappage allowance for cars, which has been further enhanced by a series of special offers from manufacturers, is keeping consumer sentiment high, particularly as this form of buying incentive is being adopted by other industries for their products. And with this, consumers can look forward to further price reductions.

Consumer climate: still stable

The overall indicator is forecasting a value of 2.5 points for May, following a revised value of 2.5 points for April. This indicates that the consumer climate remains robust overall, despite an economic environment which is generally recessive, with consumers still defying the gloomy messages concerning orders and production. However, the index remains at a very low level and is why this year, while domestic demand may provide partial relief from the heavy losses in terms of exports and investment, it will by no means be able to offset them completely.

Beyond this, the latest spring report, which was published after the survey period, is likely to stress the consumer climate in the coming months. Some of the leading financial institutes are basing their forecasts on the assumption that the German economy will shrink by 6% in 2009. This could further challenge the consumer climate.  

However, the greatest hazard jeopardizing further development of the consumer climate comes from the job market. If the available possibilities, such as short-time work, intended to head off redundancies, should be exhausted by companies with no economic recovery yet on the horizon, there are bound to be further redundancies and this would have a severe adverse effect on the job market and with it, the consumer climate.

The research findings are extracts from the "GfK consumer climate MAXX survey”, which is based on around 2,000 consumer interviews conducted each month on behalf of the EU Commission. The GfK consumer climate survey has been conducted since 1980.