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News : EU Economy Last Updated: May 26, 2014 - 2:44 PM

German consumer confidence positive and stable heading into June
By Finfacts Team
May 26, 2014 - 11:15 AM

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German consumer confidence remained good in May this year and GfK, the market research firm, said today that as in the previous months, no clear trend was discernible. Following a value of 8.5 points in May, the overall indicator is again forecasting 8.5 points for June. While economic expectations increased considerably and willingness to buy registered a marginal improvement, income expectations lost a large share of the gains achieved in the previous month.

The economic outlook of German consumers continued to improve in May, despite the Ukraine crisis. This has also benefited willingness to buy, albeit to a limited degree, with a slight increase recorded in the indicator value. In contrast, the highest value since reunification recorded for income expectations last month was not maintained and a large share of the rise achieved in April was again lost.

Economic expectations: gaining momentum: After stagnation in economic expectations for the last three months, there was a notable improvement in May this year. The indicator increased significantly by 6.4 points, rising to 38.5 points. A higher value was last recorded in July 2011, when it climbed to 44.6 points. Overall, there is a slight upward trend in the economic mood.

GfK said that events in eastern Ukraine, which reached a preliminary climax with the referendum on regional independence from Ukraine, evidently did not have a lasting impact on the economic mood in Germany recently. Reports of a continued increase in employment and a fall in the number of registered unemployed below three million have presumably further strengthened optimism with regard to ongoing economic development.

German federal statistics also testify to a robust start to 2014 for the German economy. According to preliminary figures on the gross domestic product (GDP) for the first quarter of this year, the economy has clearly gained momentum. GDP rose by 0.8% on the last quarter of 2013, with the statistics office stating that the positive stimulus was solely attributable to increased domestic consumption and investment.

In contrast to consumers, companies evidently still consider there to be potential for greater risks from the Ukraine crisis and this is reflected in the decline of the Ifo Business Climate Index in May.

Income expectations: decline: The highest value in income expectations since reunification reached in the previous month was not maintained. The indicator fell by 4.5 points and the majority of April's increase was therefore negated. However, at 47.8 points, the indicator remains at a very high level and is still almost 14 points above the corresponding previous year's value.

Despite the recent drop, Germans appear to be taking an exceedingly optimistic view of the developments they can expect in their personal finances. Employment continues to rise, as stated in the Federal Statistical Office report for the first quarter, according to which 41.7 million were employed in Germany in the first three months of the year. This marks an increase of 0.8% on the first three months of 2013.

The stable labor market provides greater scope for salary and wage increases. It can now be assumed with certainty that collectively negotiated incomes will increase by around 3% this year. Inflation also looks set to remain moderate in the coming months, which means Germans will notice a significant improvement in their wallets in real terms. 

Willingness to buy: slight increase: Following a drop in the previous month, willingness to buy rose slightly in May. However, at 0.9 points, the rise is minimal. The indicator is currently at 49.5 points and therefore almost 12 points up year-on-year.

Consequently, the desire to consume has consolidated its already high level. Stable employment prospects and the associated increases in income coupled with extremely moderate inflation all contribute to establishing perfect general conditions in Germany for high willingness to consume. The propensity to save has also not had any effect in this regard as it is virtually unchanged on the previous month. 

Consumer climate: stable development continues: Following a value of 8.5 points in May 2014, the overall indicator is again forecasting 8.5 points for June. The consumer climate is therefore maintaining its very stable development and has now been unchanged for four months.

This is also reflected in reality. The preliminary calculations from Destatis, the federal statistics office for GDP in the first quarter of 2014 reveal that the positive stimulus for growth solely came from within Germany, from private spending, among other areas. This serves as confirmation of GfK's forecast published at the start of the year, according to which private consumption will increase by around 1.5% in real terms in 2014.

Although the Ukraine crisis does not yet appear to be having a negative impact on the consumer mood, the international environment does still harbour risks for the German economy. For example, the consumer climate would be affected if energy prices increase significantly as a result of tougher economic sanctions being imposed on Russia. This would then in all probability result in private spending being cut, as households would be forced to allocate a greater proportion of their budgets to natural gas or heating oil.

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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