German consumers are in good mood in July, according to the Gfk consumer climate index. The good performance of the German football team in the World Cup, the warm summer weather and the upbeat news from the employment market have generated positive sentiment among the people of Germany.

Economic expectations rose sharply in July. Income expectations also gained significant ground and compensated the losses of the previous month. However, propensity to buy sustained slight losses. The overall indicator predicts 3.9 points for August following a revised 3.6 points in July. The successful performance of Schweinsteiger and Co. in South Africa and the sunny weather with high summer temperatures put the people of Germany into a good mood. This is supplemented by the surprisingly positive employment situation. These factors are overshadowing the clear threat posed by negative factors such as the austerity package and increase in health insurance contributions.

Economic expectations: major upward surge:After a slight increase in economic expectations was already recorded in the previous month, they made significant gains in July. The indicator rose by 31.3 points to the current level of 36.8 points. This is the highest figure since October 2007. Year-on-year this is equivalent to an increase of as much as 50.8 points.

Consumers expect the recovery of the German economy not only to continue further but even to gain additional momentum. As well as psychological factors, this economic optimism is also supported by hard facts. Gfk says the enthusiasm that prompted memories of the 2006 summer fairy tale to arise during the Football World Cup also held up after the end of the tournament. In addition, further positive news was recently reported from the employment market. Economic forecasters are now even expecting the number of unemployed to fall below three million this autumn. In its June forecast Deutsche Bundesbank therefore predicts growth of 1.9% of gross domestic product (GDP). The Institute of Economic Research (DIW) is even expecting 2.1% growth this year. Following the sharp slump in the economy last year, the German economy is clearly recovering from the financial and economic crisis more quickly than originally expected. This is also shown by the development of the ifo Business Climate Index, which in July rose more sharply than at any time since German reunification.

Income expectations: optimism returning: Following the sharp declines in the previous month, consumers have become optimistic again with regard to the further development of their income. With a sharp increase of 20.9 points, the losses from June have been more than offset. At present the indicator is showing 29.1 points. Compared with July 2009, growth of 27.3 points has been measured.

The income indicator is therefore benefiting from the sharp rise in economic optimism. The falling number of unemployed due to the economic recovery means that fewer workers are specifically worried about their jobs and hence their income situation. On top of this, reduced working hours have gone down massively in all areas of the economy over the past few weeks. 

Propensity to buy: slight losses at a high level:The noticeably more optimistic economic and income expectations did not yet reach buying propensity in July. The indicator recorded a slight loss of 2.5 points. However, at 27.9 points, the current level of propensity to buy can be described as extremely good and is well above the long-term average.

Before and during the Football World Cup some sectors benefited from a special economic boost, with investments being brought forward, in particular for consumer electronics. The slight downturn in propensity to buy in July is therefore seen as a return to normal.

Consumer climate: significantly improved: The overall figure predicts a figure of 3.9 points for August 2010, up from a revised 3.6 points in July. The consumer climate this summer is therefore set to improve again. It remains to be seen whether the upturn in sentiment also continues in the months to follow. At any rate, the underlying conditions for this are in place. The employment market will remain upbeat in the next few months and the number of unemployed is expected to fall further. Furthermore, with an expected inflation rate of around 1%, the price level in Germany is set to remain moderate this year.

The Survey: 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. The GfK consumer climate survey has been conducted since 1980.