Nuremberg, 28 August 2013 – A varied picture emerged in Germany for the mood of consumers in August. While willingness to buy continued to improve, the indicator values for both economic and income expectations declined. The overall indicator is forecasting 6.9 points for September, following a value of 7.0 points in August.
For the coming months, consumers are expecting the recovery of the German economy to be rather sluggish. This accounts for the slight decline in income expectations, which dropped marginally from an extremely high level in August. In contrast, Germans’ willingness to buy improved once again and the indicator is now at the highest level since the end of 2006.
Economic expectations: slight decline
Following improvement for three consecutive months, economic expectations of German consumers fell for the first time in August. The indicator dropped by 2.5 points and is currently at 1.8 points. It therefore remains at a positive level, above the zero threshold which signifies the long-term average. The upward trend in the economic outlook has therefore weakened somewhat. Consumers clearly feel that though the German economy is improving, recovery is likely to be rather slow over the coming months. Small setbacks can also not be entirely ruled out.
Confidence that the German economy would gain momentum again was boosted by the publication of the gross domestic product (GDP) data for the second quarter (according to the Federal Statistical Office, GDP improved on the previous quarter by 0.7 percent, which is stronger than most had anticipated). However, it is to be expected that this dynamism will not continue in the third quarter and that growth will be rather more moderate. In contrast, German companies are currently in a more optimistic mood, as verified by the fourth successive increase in the Ifo Business Climate Index in August.
Income expectations: decline for first time following four consecutive increases
Following four consecutive increases and reaching a two-year high last month, income expectations fell for the first time again in August. The indicator dropped by 5.6 points. However, at 37.2 points, it is still at an extremely high level. The stable upward trend in income expectations has weakened slightly.
The slightly less optimistic economic outlook of consumers could be a possible reason for this decline. The increased price expectations of consumers in August potentially also played a role. In July, the rate of inflation in Germany increased to 1.9 percent, primarily owing to higher food prices. In June, it had been 1.8 percent and in May it was still 1.5 percent. Consumers evidently fear that their purchasing power will come under pressure and are taking a slightly more restrained view of their income prospects.
Despite this decline in August, the indicator is still at a very high level. This is above all attributable to the extremely stable employment situation, which is allowing greater scope for collective bargaining agreements.
Willingness to buy: highest level since end of 2006
Despite declining economic and income expectations, the generally optimistic consumer mood in Germany remained in August. Following an improvement of more than 4 points in the previous month, willingness to buy once again rose in August. The indicator value went up 3.7 points and is currently at 44.4 points. Consumers’ willingness to buy therefore reached the highest level since December 2006, when the indicator reached record highs on account of the advance purchasing effect prior to the forthcoming value added tax increase.
Evidently consumers still continue to think it advisable to make major purchases. In light of extremely low interest rate levels and the recent slight rise in the rate of inflation, the appeal for consumers to invest their money in major purchases has increased further still. Such investments include real estate, which is reflected in official data on economic performance. According to the Federal Statistical Office, the aforementioned clear GDP growth in the second quarter is attributable not only to private consumption, but above all to increased private construction.
Consumer climate: upward trend halted for the time being
Following a value of 7.0 points in August, the overall indicator is forecasting 6.9 points for September. Consequently, the upward trend of the consumer climate since February 2013 has therefore come to an end for the time being. However, it cannot yet be assumed that this is a trend reversal and the start of a downturn. In light of the extremely stable labor market situation and overall good income development for employees, the prospect of the consumer climate stabilizing in due course is in fact quite good. However, a prerequisite for this is that the ongoing international debt crisis does not cause greater uncertainty among Germans and that the price upturn does not strengthen in Germany.
GfK confirms its forecast issued at the start of the year that private spending will increase by around one percent in real terms in 2013. Private consumption would therefore play an essential role in stimulating economic development in Germany.
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 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.
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