| Click for the Finfacts Ireland Portal Homepage |

Finfacts Business News Centre

Home 
 
 News
 Irish
 Irish Economy
 EU Economy
 US Economy
 UK Economy
 Global Economy
 International
 Property
 Innovation
 
 Analysis/Comment
 
 Asia Economy

RSS FEED


How to use our RSS feed

Follow Finfacts on Twitter

 
Web Finfacts

See Search Box lower down this column for searches of Finfacts news pages. Where there may be the odd special character missing from an older page, it's a problem that developed when Interactive Tools upgraded to a new content management system.

Welcome

Finfacts is Ireland's leading business information site and you are in its business news section.

Links

Finfacts Homepage

Irish Share Prices

Euribor Daily Rates

Irish Economy

Global Income Per Capita

Global Cost of Living

Irish Tax - Income/Corporate

Global News

Bloomberg News

CNN Money

Cnet Tech News

Newspapers

Irish Independent

Irish Times

Irish Examiner

New York Times

Financial Times

Technology News

 

Feedback

 

Content Management by interactivetools.com.

News : EU Economy Last Updated: May 25, 2011 - 1:26 PM


Euro crisis and energy prices weigh on German consumer climate in May
By Finfacts Team
May 25, 2011 - 7:55 AM

Email this article
 Printer friendly page

The euro crisis and high energy prices have weighed on the German consumer climate and after a slight setback last month, consumer sentiment in Germany has again seen a decline in May. Both economic and income expectations, as well as the propensity to buy, are currently recording negative development. The overall indicator is forecasting a value of 5.5 points for June, following a value of 5.7 points in May.

GfK, the global market research group, says that the worsening of the debt crisis in Greece and continuing high energy prices are dampening the optimism that German consumers have been exhibiting up to now. As a result, the still very positive general conditions in Germany, such as falling unemployment and the strong economic upswing, are currently being somewhat overshadowed.

Economic expectations: slight decline, but still at a high level: Consumers’ economic expectations have declined in May; however, the drop is modest, at 1.2 points. The indicator currently stands at 46.1 points, and is therefore showing a considerable increase of more than 42 points in a year-on-year comparison.

In addition to the unrest in North Africa and the Middle East, discussions surrounding the debt crisis in Europe are likely to have had a slightly negative effect on economic optimism. Further commitments to lend to Greece and the adoption of a rescue package for Portugal come with the proviso that the governments of the respective countries implement strict consolidation plans to put their public finances in order. Germany could be particularly negatively affected by this, as it is an export nation.

GfK says despite these risks, the German economy is currently feeling the benefits of a strong tailwind. According to figures from the Destatis, the federal statistics office, the GDP (gross domestic product) in the first quarter of 2011 was 5.2% higher than in the same period of the prior year; this represents the strongest growth since reunification. The firm says it is also worth noting that domestic demand, in the form of investments and consumption, has contributed more than exports to this excellent development in the first three months of the year. The upswing is therefore no longer being supported by just one pillar, as was often the case in the past, and the prospects for sustained positive economic growth in Germany are better as a result.

The International Monetary Fund (IMF) recently revised its 2011 growth forecast for Germany upwards from the original figure of 2.5% and is now assuming that, as in the prior year, growth in GDP of more than 3% is entirely possible. After two slight declines in a row, the Ifo Business Climate Index has remained stable in May, which also reflects the fact that the underlying data for the German economy is very good.

Income expectations: significant drop: Following a moderate drop in the prior month, income expectations have recorded a more considerable decline in May. The indicator now stands at 25.9 points, which is more than 9 points below the figure for April this year.

One of the major causes of this negative development, in addition to more moderate economic expectations, are rising prices in Germany. Energy prices in particular have contributed to the rise in the inflation rate to 2.4% in April, compared with 2.1% in March. Everyday products such as petrol and food items have become considerably more expensive over the past few weeks, which has resulted in an increase in perceived inflation, because these products have a signaling effect. Consumers very quickly have the impression that everything is becoming more expensive; their purchasing power is falling and as a result, the income growth enjoyed by employees this year is being largely offset. The balance sheet looks even more unattractive for pensioners. Since state pensions were only raised by around 1% this year, this group of consumers has suffered a loss in real income.

The Challenges of Europe survey conducted by the GfK Association also shows that Germans are becoming increasingly focused on the progress of inflation. The development of prices and purchasing power is ranked second on the list of consumers’ concerns, after fear of unemployment, which has nonetheless fallen markedly. One in three Germans is worried about price stability at present, compared with just under one in four a year ago.

In addition, the worsening of the debt crisis and, in connection with this, the provision of a range of rescue facilities for Greece, Ireland and Portugal mean that Germany will have to provide large sums of money. Many consumers evidently fear that they could suffer the knock-on financial effects.

Propensity to buy: moderate decline; level remains high: Whereas the propensity to buy was virtually unaffected by falling economic and income expectations in the prior month, it has recorded a decline in May, albeit a moderate one of 2.7 points. At 31.5 points, the current level is still very good in a long-term comparison: the long-term average value of the indicator stands at around 0 points.

The indicator is therefore continuing to perform well in spite of the risks that rising inflation represents for consumers. One major factor boosting the propensity to buy is undoubtedly the very pleasing development on the labor market. As a result of falling unemployment figures, fears of job losses are also dwindling further. The Challenges of Europe survey confirms this: although fear of unemployment is still the top-ranked concern for 55% of Germans, this is a significant drop of 11 percentage points compared with the prior year. Consumers have greater planning security as a result, particularly as regards larger purchases; in addition these are mostly not affected by the current price hikes.

Consumer climate: decline continues: The overall indicator is forecasting a value of 5.5 points for June, following a value of 5.7 points in May. The slight downward trend is therefore continuing for the time being. As a result of the increased risks from abroad, this development is not all that surprising. The unstable global political situation, for example in North Africa and the Middle East, as well as the controversial discussions surrounding the course of action for handling the worsening debt crisis in Greece are also having a negative impact on the consumer climate. In addition, continuing high energy prices are weighing on the budgets of private households.

On the other hand, the general conditions in Germany, such as the very pleasing economic development and continuous reduction in unemployment, indicate that consumption is fulfilling its role as the second major source of support for the German economy this year. In view of the global economic risks, including a possible curtailing of the very good export development, GfK says it will be important to strengthen this second pillar.

The survey: Thee 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.

Related Articles
Related Articles


© Copyright 2011 by Finfacts.com

Top of Page

EU Economy
Latest Headlines
Spain's strong recovery to slow in the next few years
Italy's Mezzogiorno is Achilles' heel of Euro Area - lowest birth rate since 1862
Euro Area GDP grows at weak 0.3% in Q2 2015
German GDP up 0.4% in Q2 2015; France's GDP stagnates
Germany's Surplus: Lots of critics; Credible solutions scarce
Euro Area industrial production dips in June and May after a flat April
Greece faces two years of recession according to EU officials
High EU youth unemployment rate not as bad as it seems
Eurozone retail PMI surges to highest since January 2011
ECB monetary policy still tight for Southern Europe
German exports fell in June — surplus at record; Exports up 13.7% year-on-year
Eurozone manufacturing sector continued to expand in July
Weak euro unlikely to have significant impact on Euro Area growth
Is Euro Area Ireland's top trading partner?: EU28 is overwhelmingly UK's
German car firms boost exports from Spain, UK, Portugal, Czech Republic, Slovakia, Hungary and Romania
Flash Eurozone manufacturing/ services PMI close to four-year high despite Greek crisis
Krugman calls euro a Roach Motel; Hotel California gets 1-star grade
Greece & Euro Crisis: July 2015 articles from Finfacts
Greece and other poor countries in Euro Area will not become rich
Euro Area manufacturing/ services PMI hits four-year high in June
Western European car market: Recovery continues
Greece could become a failed state like Venezuela
Multinational companies pay on average 30% less tax than domestic competitors in EU
EU's list of 30 tax havens omits the biggest 4 in Europe
China to invest in Juncker's European investment fund
Greek talks collapse; Game theorists gambling with future — Germany's vice-chancellor
German exports and industrial production in strong rises in April
Tackling Inequality: Scandinavian countries have the most successful welfare systems in Europe
Eurozone unemployment fell by 130,000 in April 2015 — down 849,000 in 12 months
Eurozone service sector business activity slowed during May
German 2015 GDP forecast cut; Jobless level at 24-year low
Eurozone manufacturing in modest acceleration in May
FDI into Europe at record in 2014; UK on top: Germany location for future investment
Eurozone economy loses growth momentum; Jobs growth rises
Athens leak suggests Juncker has plan for Greece
Draghi will not end QE early but warns of risks
Eurozone grows faster than US and UK in Q1 2015
German GDP at slower pace, France faster in Q1 2015
Germany may cut income tax; Germans still shun risky investments
Germany had record exports and imports in March 2015