Germany: Consumer climate setback: consumers believe positive economic development is under threat
Nuremberg, 27 August 2014 – German consumers have become less optimistic this August. The consumer climate suffered a setback. Following a revised value of 8.9 points in August, the overall indicator is forecasting 8.6 points for September. When compared with the previous month, both income expectations and willingness to buy have fallen slightly, while economic expectations completely collapsed in light of the intensified state of international affairs.
The escalation of the situation in Iraq, Israel and Eastern Ukraine as well as the gradually accelerating spiral of sanctions in Russia have now also had a negative impact on the previously extremely optimistic economic outlook of Germans. Uncertainty with regard to the continued economic developments in Germany has increased quite considerably. In contrast, income expectations and willingness to buy have so far remained relatively robust. While there has been a decline in the wake of the drop in economic expectations, these indicators have largely maintained their already high level.
Economic expectations: greatest slump since 1980
Consumers are increasingly taking the intensified geopolitical situation into consideration in their assessment of how the German economy will develop over the coming months. The indicator dropped by 35.5 points, plummeting to 10.4 points. A decline of this magnitude in just one month has not been recorded since the survey began in 1980. Consequently, virtually all improvement in the economic expectations indicator over the past year has been negated in one fell swoop. In August 2013, the indicator value was 1.8 points.
Consumers are expecting the economy to shift down a gear or two at least. Given that no long-term solutions appear to be on the cards yet for any of the crises, uncertainty is rising in the population on the potential consequences for the German economy. In particular, the sanctions against Russia, which are already significantly impacting exports, could become a real risk for the German economy.
The first provisional figures from the Federal Statistical Office on GDP in the second quarter indicate that weakening exports and investments are the primary cause of the decline of 0.2 percent in economic performance in comparison with the previous quarter.
A further deterioration in the economy is also expected by German companies, as is reflected in the latest Ifo Business Climate Index, which fell for th fourth consecutive time, dropping to the lowest level since July 2013.
Income expectations: record value not maintained
The fact that income expectations did not maintain the record level of the previous month is primarily attributable to the collapse in the economic outlook. The indicator dropped by a moderate 4.6 points and now stands at 50.1 points. It therefore continues to be at an extremely high level.
Evidently the continued stability of domestic framework conditions, such as the steady employment situation, good income development and low inflation, are ensuring that the severely deteriorated economic optimism is only having a very limited impact on the income outlook. Unemployment appears to be stabilizing this year, at just under three million, and employment is even rising slightly. In conjunction with a moderate rate of inflation, this is resulting in real increases in income for both employees and recipients of statutory pensions.
Willingness to buy: maintaining extremely high level
Willingness to buy continued to be highly robust in August. Although the indicator fell by 1.7 points, the spending mood has remained at an extremely high level. The indicator currently stands at 49.3 points and has therefore still increased by almost 5 points in comparison with the corresponding period of the previous year.
To date, the collapsing economic mood has not had much of an impact on the propensity to consume. At present, consumers seem to be basing their judgment on stable employment conditions as well as the low rates of inflation and interest, rather than the ever more unstable international environment. However, the marked increase in the propensity to save in August could be a first indication that consumers will be more cautious in the coming months and that the momentum for spending will subside somewhat.
Consumer climate: slight decrease
Following a revised value of 8.9 points in August, the overall indicator is forecasting 8.6 points for September 2014. This is the first decline in the consumer climate since January 2013. Nonetheless, the indicator continues to be at a rather high level.
Despite the slight decline, GfK is confirming its forecast for 2014 as a whole of private consumption rising by 1.5 percent. Major upheavals in the global economy have so far only affected the consumer mood in Germany to a very limited extent. In order to ensure that this remains the case for consumers in future, it is important that the situations in the crisis regions do not escalate further and that long-term solutions are found instead. However, if domestic framework conditions also deteriorate decisively as a result of any potential further escalation, it is probable that more difficult times will also lie ahead for the German economy.
About the study
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 report contains charts, forecasts and a detailed commentary regarding the indicators. In addition, the report includes information on proposed consumer spending in 20 different areas of the consumer goods and services markets. The GfK Consumer Climate survey has been conducted since 1980.
The consumer climate explicitly refers to all private consumer spending. However, depending on the definition, only 30 percent of private consumer spending is accounted for retail. The remainder is attributable to services, travel, rent, health services and the entire personal care segment.
GfK is predicting a rise in private consumption of 1.5 percent for 2014. Again, this does not relate to just retail sales, but to all consumer spending. Last year, GfK forecast that private spending would increase by 1.0 percent. According to figures from the Federal Statistical Office, private spending grew by 0.9 percent in 2013, which means GfK’s prediction was almost spot-on.
Willingness to buy is a mood indicator, as are all the other indicators. It examines whether consumers think it is advisable to make major purchases at present. Even if they answer “yes”, two further requirements need to be fulfilled for a purchase to be made: consumers must have the money that is required for such a major purchase and also regard this acquisition to be necessary. In addition, it only relates to consumer durables, which require a greater budget.
The findings of the consumer climate survey based on around 2,000 interviews conducted each month on a representative sample of the German population. This survey tool is subject to continuous quality controls, especially in relation to the representativeness. The fact that the results are used and recognized in the field of empirical legal research (for example, the likelihood of confusion between products) is a testament to the exceptionally high quality of this survey. This means that the results are quality approved by experts and must stand up in court.
About GfK
GfK is the trusted source of relevant market and consumer information that enables its clients to make smarter decisions. More than 13,000 market research experts combine their passion with GfK’s long-standing data science experience. This allows GfK to deliver vital global insights matched with local market intelligence from more than 100 countries. By using innovative technologies and data sciences, GfK turns big data into smart data, enabling its clients to improve their competitive edge and enrich consumers’ experiences and choices.
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