Daily News

View All News

Germany - Slight dampening of consumer climate

27 April 2011

Consumer sentiment in Germany has been slightly dampened in April this year, according to the latest Consumer Climate Research carried out by economic research firm GfK.

Although the propensity to buy has more or less maintained its good level, economic and income expectations have recorded a decline. The overall indicator is forecasting a value of 5.7 points for May, following a value of 5.9 points in April.

Higher prices, the nuclear disaster in Japan and the escalating political unrest in North Africa and the Middle East all mean that the general conditions for German consumers no longer appear quite as positive at present. This has been reflected by less optimistic economic and income expectations in April this year. However, the propensity to buy has maintained its good level.

Economic expectations: still at a high level, despite decline 

Following a somewhat steeper drop in the previous month, economic expectations have recorded a comparatively moderate decline of 2.2 points in April, so that the indicator currently stands at 47.3 points. Despite this slight drop, however, the level is still markedly high. This is underlined by a comparison with the previous year, which reveals an increase of almost 25 points.

The slightly stronger headwind in the geopolitical climate has left its mark on consumer sentiment. Alongside rising energy prices, the nuclear disaster in Japan and escalating unrest in North Africa and the Middle East are causing uncertainty among consumers. As an export nation, Germany is particularly dependent on a settled and secure global economic environment. It is clear that the events in Fukushima and Libya have recently triggered some uncertainty and have overshadowed the very good framework conditions in Germany, such as the positive development of the national labour market. The second consecutive slight decrease in the Ifo Business Climate Index is further evidence of this.

However, despite the increased risks from abroad, Germany's economic prospects continue to be viewed positively. The forecasts for growth this year were recently revised upwards across the board. For example, in their spring report, the leading research organisations raised their growth forecast from the figure of 2.0% announced in autumn 2010 to 2.8%.

Income expectations: moderate drop

The decline in economic expectations is also having an effect on income expectations, which have dropped back by 5.5 points in April. However, the indicator is still significantly above its long-term average value of 0 points, currently standing at 35 points.

Apart from the global economic risks, the recent rise in prices is the main other reason for the more moderate income climate. Record price levels for petrol and fuel are having a dampening effect on consumer purchasing power. Living costs rose by 2.1% in March this year, and according to the Federal Statistical Office, a considerable proportion of this increase is attributable to higher energy costs. These increased prices are partially offsetting the considerable growth that has been seen in salaries and wages. Pensioners are experiencing a decline in real income this year, because the planned rise in state pensions will be around 1% below the rate of inflation. 

Propensity to buy: stable development

In contrast to income and economic expectations, the propensity to buy has proven to be virtually unaffected in April this year. At 34.2 points, the indicator is recording almost exactly the same value as in the previous month (34.3 points), and in a year-on-year comparison, it is up by almost 13 points.

The indicator is therefore holding its own, despite less positive framework conditions. In particular, the excellent economic situation in Germany and rising employment are evidently easing fears of job losses. This gives consumers planning security, particularly for larger purchases, and is currently preventing a downward slide in the propensity to buy as a result of rising inflationary pressures. Experience shows that increasing price expectations usually have a dampening effect on the propensity to buy.

Consumer climate: slight decline

The overall indicator is forecasting a value of 5.7 points for May 2011, following a value of 5.9 points in April. This shows that the consumer climate has suffered the slight dampening that was expected as a result of the geopolitical situation. To what extent this might develop into a trend depends predominantly on the further development in overall global conditions. As the prerequisites for a good consumer economy in Germany are still present, consumption is likely to continue to play an important role over the coming months. Against the backdrop of an expected slowing in export growth, it will be important to have a second strong pillar for economic growth in Germany besides exports.

To read the full report in German language please click here


Add New Comment

Post comment

NOTE: Links will not be clickable.
Security text:*