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News : EU Economy Last Updated: Nov 27, 2013 - 2:54 PM


Consumer mood in Germany improves in November
By Finfacts Team
Nov 27, 2013 - 2:52 PM

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The consumer mood in Germany is notably more optimistic in November than in the previous month. Economic and income expectations registered considerable increases and willingness to buy reached a seven-year high, according to GfK, the consumer research group. Following a revised value of 7.1 points in November, the overall indicator is forecasting 7.4 points for December.

The apparent trend towards recovery of the German economy has not gone unnoticed among consumers. Both economic and income expectations rose sharply upwards. Willingness to buy also improved again from its already extremely high level, partly stimulated by the European Central Bank lowering interest rates.

Economic expectations: pace of German economy picks up: In November, Germans' economic expectations improved for the third consecutive time. At +9 points, the rise is in fact very strong. The indicator is currently at 20.3 points and therefore the highest it has been in more than two years. The value was last higher in July 2011, when the indicator was at more than 44 points.

GfK says consumers are evidently expecting the German economy, which is currently on an upward trend, to pick up further and gain ever more momentum in the coming months. This optimism is also shared by experts. In its recently published Annual Economic Report, the German Council of Economic Experts predicted that gross domestic product (GDP) would increase to 1.6% in 2014, following a moderate 0.4% this year. Companies agree with this assessment. The Ifo Business Climate index also climbed to its highest level since spring 2011 in November. German businesses therefore have a confident outlook for the coming winter months.

According to experts, a key reason for this is the emerging international economic revival, which is above all evident in emerging nations such as China and some Central and Eastern European countries. This is likely to benefit both the currently sluggish German exports and investment, with the latter also being boosted by ongoing low interest rates. 

Income expectations: noticeable improvement: After falling for the past three months, income expectations jumped up in November. The income expectations indicator rose by 12.5 points and is currently at 45.2 points. To find a higher income expectations value from the past, one has to look back quite some way to March 2001, which is more than 12 years ago, when the indicator was at 45.7 points.

The excellent income mood this month certainly also benefited from the improved economic outlook. The emerging signs of a recovery in the German economy are also causing employment to increase again, albeit moderately. In turn, this is ensuring that incomes will also record considerable growth rates, which are very likely to be above the expected rate of inflation and will therefore result in real income increases for private households.

In its Annual Economic Report, the German Council of Economic Experts predicted that the disposable income of private households in Germany would increase nominally by 3.4% next year. In view of the expected price-increase rate of less than 2%, this will result in significant income growth in real terms.

Willingness to buy: rises to seven-year high: The consumption mood in Germany remained unbroken in November. Willingness to buy once again improved on its already very high level, rising by 1.3 points to 45.7 points at present. The indicator has therefore reached a seven-year high. A higher value was last recorded in December 2006, when the indicator was at 59.9 points.

Alongside the continued favorable development in employment and real increases in income,
GfK said the recent decision by the European Central Bank has certainly also played a part in stimulating the consumer mood. In order to stimulate the economy in the Eurozone, the ECB has once again cut its benchmark interest rate by 0.25 percentage points. The propensity to save dropped to a new historic low this month, presumably as a result of this interest reduction.

The appeal of saving, the alternative to spending, is falling further and further for consumers. Consequently they are more likely to focus their financial means on consumption. This is certainly good news for the imminent Christmas business.

Consumer climate: gaining momentum: Following a revised value of 7.1 points in November, the overall indicator is forecasting 7.4 points for December 2013. The consumer climate is therefore picking up as the year comes to an end. The outlook of an increased recovery in the German economy and the cut in the benchmark interest rate by the ECB provided an additional boost to the consumer mood at the end of 2013. GfK is confirming its forecast that private spending in Germany will increase by around one% in real terms in 2013. Consumption will register clear above-average increases.

For 2013 as a whole, the improvement in GDP is only predicted to be just under 0.5%.
This means that consumers will be the main, decisive pillar of the economy this year. In addition, the anticipated positive employment situation will ensure that consumption will continue to play a key role in the overall economic development in 2014.

These findings are extracts from the “GfK Consumer Climate MAXX sur-vey”, which is based on around 2,000 consumer interviews conducted each month on behalf of the European Commission. The GfK Consumer Climate survey has been conducted since 1980.

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