German consumer rose for the fifth straight month in August. Both economic and income expectations have once again increased and the propensity to buy has also improved, according to the monthly survey by the Gfk marketing firm. The overall indicator is forecasting a value of 3.7 points for September 2009, following a revised value of 3.4 points in August. However, in a long-term comparison, the consumer climate continues to remain at a relatively low level.

According to the latest reports from various economic institutes, the downward spiral of the German economy seems to have come to a stop, and consequently, economic pessimism has further diminished and economic expectations have increased for the fifth time in succession. Inflation is disappearing and consumers have more money in their pockets, which is being expressed by a rise in income expectations. Stable or even falling prices, as well as an ongoing, relatively steady labor market, have also resulted in an improvement in the propensity to buy. Whether this upward trend will persist depends on the extent to which the labor market declines in the course of the year. A sharp increase in unemployment would surely also depress the consumer climate.

Economic expectations: fifth consecutive increase

Economic expectations continue to rise from the recession-induced lows at the beginning of the year. This indicator increased for the fifth time in a row in August, climbing by 6.5 points. It now stands at -7.5 points and is therefore more than 14 points higher than the corresponding figure for the previous year.

As the steep downturn of the German economy seems to have come to an end, consumers are increasingly abandoning their economic pessimism. The likelihood that the economy will begin to grow again by the third quarter has increased significantly. The growth in incoming orders and production support this prognosis. Global economic stimulus programs are beginning to take effect and, as a result, financial analysts are once again considerably more optimistic, as the current growth in ZEW (Centre for European Economic Research) economic expectations shows. Following its ninth consecutive increase within the last ten months, the ZEW index has reached its highest level since April 2006, and was also markedly above its long-standing average of 26.5 points. The ifo Business Climate Index also recorded an unexpectedly sharp increase to 90.5 points in August, thereby rising for the fifth time in a row.

Income expectations: upswing continues

Gfk says income expectations have once again increased this month, following their return to positive territory in July for the first time since April 2008. This third consecutive rise brings the indicator to 8.8 points in August, which is an increase of 7 points compared with the previous month. In comparison to the prior year, this is a climb of over 25 points.

Various measures from the Economic Stimulus Package II, such as lower health insurance payments and income tax relief, as well as low levels of inflation, have resulted in a current improvement in sentiment regarding incomes. Due to stable and even falling prices, consumers are left with more money in their pockets. Currently, these developments are apparently displacing possible fears over job security.

Propensity to buy: upward trend

Following the previous month’s double-digit growth, the propensity to buy also improved in August. The rise of 6 points is a little lower than that seen in the previous months. However, overall, the indicator stands at 31.1 points, its highest position since December 2006.

Low and sometimes declining prices, in particular, are supporting the propensity to buy. This link between consumers’ price expectations and their willingness to buy has also been evident in the past. The current apparent downward trend in price expectations is stimulating the propensity to buy. Furthermore, the labor market has so far remained unexpectedly robust in the face of the economic crisis. Across the board, companies are bridging periods of weak production by short-time working. In addition, the government scrappage scheme should temporarily support the propensity to buy.

Consumer climate: further improvement

Gfk says the overall indicator is forecasting a value of 3.7 points for September 2009, following a revised value of 3.4 points in August. The consumer climate is therefore continuing to improve, although the indicator level remains below average in a longer term comparison. The average value since reunification is 9 points, and consequently markedly higher than the current position.

The consumer climate is currently proving to be a significant support to the German economy, as the recently published data that GDP expanded by 0.3% in the second quarter, shows. Real private consumer spending rose by 0.5% in the second quarter of this year in comparison with the same quarter of the previous year, according to Destatis, the German statistics office.

Whether this upward trend will continue is predominantly dependent upon the sustained development of the labour market. Gfk says consumer climate would be strongly affected by discernible increases in unemployment over the course of this year.

The survey

The confidence 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 report contains charts, forecasts and a detailed commentary regarding the indicators. In addition, the report includes information on proposed consumer spending in 20 different areas of the consumer goods and services markets. The GfK consumer climate survey has been conducted since 1980.