The mood of German consumers was notably buoyant at the start of 2014. Both economic and income expectations as well as willingness to buy improved, in part quite considerably. Following a revised value of 7.7 points in January, the overall indicator is forecasting 8.2 points for February.
Germans consider the domestic economy to be clearly on the upturn at present. This is reflected in the fifth consecutive improvement in economic expectations. In the wake of this, income prospects climbed to reach a 13-year high. Willingness to buy also improved and surpassed its seven-year high of the previous month. The considerable increase in the consumer climate is further boosted by a recent slump in propensity to save.
Economic expectations: all lights on green
From the consumers' point of view, the economic upswing in Germany is gaining momentum. Economic expectations registered their fifth consecutive increase in the first month of this year. At 12 points, the rise is very strong. The indicator is therefore more than 46 points above the corresponding value in the previous year and is now at 35.3 points. This is its highest value since July 2011.
German consumers consider the lights to be green for the ongoing development of the economy. According to expert estimates, robust private consumption and investments from companies will significantly contribute to economic development this year. The continued low interest rate will play an important role in kick-starting the investment engine. This is further shored up by improved export prospects because the expected recovery of the global economy is likely to stimulate exports of German products and services.
Forecasts available so far for economic growth in Germany this year are in the region of 1.5 percent to 2 percent. German businesses are similarly optimistic in their outlook on the current year. In January, the ifo Business Climate Index increased for the third consecutive time and reached its highest value since June 2012. The expectations for future business performance are the highest they have been in three years.
Income expectations: highest value in 13 years
In the wake of the rather optimistic economic outlook, income expectations of German consumers also increased. Following an increase of 6.7 points, the indicator is now at 46.2 points. A higher value in the history of the income expectations indicator was last recorded exactly 13 years ago, when it reached 49.4 points in January 2001. The trend is therefore clearly on an upward course.
The rising economic optimism is also having a clear impact on income prospects. Robust overall economic development coupled with a stable employment situation provide scope for increases in employees' income. In light of the very moderate inflation, this is strengthening the purchasing power of consumers in a sustainable way. Consequently, the major optimism with regard to income is certainly reasonable and understandable.
The not entirely trouble-free start of the grand coalition did not have any impact on this confidence. In addition, the fact that the long-announced reduction in pension contributions will now not materialize does not appear to have had any notable impact on consumers' income expectations this month.
Willingness to buy: best value since VAT increase
Rising economic and income expectations are also having an impact on willingness to buy in January. Willingness to buy surpassed its seven-year high of the previous month by 3.9 points to 50 points at present. A better value was last recorded for propensity to consume shortly before the VAT increase in January 2007.
In light of the improving income prospects and a new record low level of saving propensity, it is only logical that willingness to buy is improving. Saving money has seemingly become still less appealing for consumers recently. Traditional investment options currently pay barely any interest. Ever more consumers are deciding to spend their money rather than pay it into the bank. In addition, the stable labor market situation is ensuring planning security, which is above all an important consideration when making major purchases. Ongoing moderate inflation is also playing its part.
Consumer climate: upward trend is accelerating
Following a revised value of 7.7 points in January, the overall indicator is forecasting 8.2 points for February 2014, which is its highest value since August 2007. The upward trend in the consumer climate is therefore clearly gaining momentum.
It was already evident at the start of the year that consumption would again be making a major contribution to overall economic growth in 2014. According to preliminary data from the Federal Statistical Office, real private consumption registered an increase of 0.9 percent last year. This confirms the prediction issued by GfK at the start of 2013 that growth would amount to 1 percent for the year.
Consumption was therefore essentially responsible for ensuring that Germany did not slip into recession in 2013 and instead registered marginal growth of 0.4 percent. Consequently, it grew at more than twice the pace of overall GDP.
The outlook for the domestic economy should also be regarded as good for 2014. GfK will be providing a more detailed consumption forecast for 2014 at its press conference on 12 February 2014.
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.
