The slight cooling of the consumer climate in Germany will continue in February, according to market research company Gfk.. Economic expectations are recording stable development, and the propensity to buy is increasing slightly again. In contrast, income expectations have recorded losses. The overall indicator is forecasting a value of 3.2 points for February 2010, following a revised value of 3.4 points in January.

The survey says German consumers are assuming that the German economy is slowly recovering from the recession, a view that is shared by many experts. However, small set-backs cannot be ruled out, and economic expectations have consequently stagnated in January. An expected rise in unemployment in the coming months and increasing fears of redundancies mean that consumers are less optimistic in their income expectations. Conversely, the many price cuts in the retail sector are boosting the propensity to buy, which has recorded an increase this month.

Economic expectations: continued stability

Consumers’ economic expectations are showing stability at the beginning of 2010. With a drop of 0.2 points, the indicator is remaining virtually constant, and currently stands at 1.5 points, more than 34 points above the corresponding level in the prior year.

Consumers evidently believe that the momentum of economic recovery is slowing, a view presently shared by financial analysts, as the current economic expectations of the Centre for European Economic Research (ZEW) show. Other economic experts are assuming in their forecasts that the German economy could grow by between 1.5% and 2% this year. However, this would only marginally compensate for the large slump of last year, when the economy shrank by 5%.

Income expectations: moderate losses

Following a significant rise at year-end 2009, income expectations have once again suffered moderate losses in January 2010. The indicator has dropped back by 2.5 points to stand currently at 12.5 points. However, a positive point to note is that the indicator is still exceeding the previous year’s level by 33 points.

Since economic expectations are currently not increasing, the income indicator this month has been affected by the lack of stimulus from this quarter. Consumers are also expecting that unemployment will rise once again in the coming months, and at the beginning of January it was announced that pensioners face a freeze in statutory retirement benefits this year. Consequently, income prospects are being assessed more cautiously.

Consumers can hope that the German government’s economic stimulus packages, including an increase in child allowance and full tax deductability for health insurance contributions, will have a positive effect on income. However, even these measures will not prevent a slight drop in the indicator in January.

Propensity to buy: slight improvement

The propensity to buy is increasing again at the beginning of 2010. Climbing by 4.2 points in January, the indicator has almost completely compensated for the losses recorded in the previous month, and at a current 25.4 points, remains at a very good level. This is underlined by the fact that it is presently exceeding the corresponding value in the prior year by just under 10 points.

This rise in the propensity to consume in January is occurring despite the downward trend in income expectations. Evidently, many consumers are currently being influenced by the multitude of discounts on offer in large swathes of the retail industry. The food, consumer electronics and furniture retail sectors are all tempting consumers with large price cuts.

Consumer climate: slight decline

The overall indicator is forecasting a value of 3.2 points for February 2010, following a revised value of 3.4 points in January this year. This means that the indicator has fallen for the fourth month in a row. In particular, the threat of a rise in unemployment and the slight weakening in German economic recovery are playing a significant role. In terms of consumption, 2010 is therefore likely to be a more difficult year than 2009.

In retrospect, it is clear that GfK’s forecast of autumn 2008, which predicted that consumption would grow by up to 0.5% in 2009, was almost entirely correct. According to the provisional figures available so far from the Federal Statistical Office, real private consumption expenditure rose by 0.4% last year.

These 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.