Trade Resources Market View The Overall Indicator Is Forecasting 7.6 Points for January 2014

The Overall Indicator Is Forecasting 7.6 Points for January 2014

The mood among consumers in Germany is again remarkably good as 2013 draws to a close. Further increases were recorded in economic expectations and willingness to buy. Income expectations declined slightly from a high level. Following a value of 7.4 points in December, the overall indicator is forecasting 7.6 points for January 2014.

Consumers also believe that the economic recovery in Germany is gaining momentum, as evidenced by the fourth successive rise in economic expectations. Willingness to buy in December also marginally topped its seven-year high of the previous month. In contrast, income expectations declined somewhat from the excellent level in November. The climb in the consumer climate is also likely to be due to the fact that in December the propensity to save once more dropped significantly below the historical low recorded in the previous month.

Economic expectations: upswing continues

Economic expectations registered a further increase in the last month of 2013. The gain of +3 points in December is already the fourth rise in a row. Moreover, at its present level of 23.3 points, the indicator is 41 points higher than the same month in 2012. The last time a higher value was recorded was in July 2011 when the indicator stood at a good 44 points.

Consumers believe that the German economy is increasingly gaining pace. At the moment, the economy is mainly driven by domestic economy and according to the experts, this will remain the case in the coming year. The emerging stabilization of economies in a series of eurozone countries is also likely to boost export prospects again and stimulate the willingness of companies to invest. Historically low interest rates are another factor contributing to this development. However, since strong domestic demand also means increased growth in imports, net exports (the difference between exports and imports) will deliver little in the way of expansive effects.

In its forecast published this week, the Ifo Institute assumes that gross domestic product (GDP) will rise by 1.9 percent in real terms, compared with a meager 0.4 percent this year (source: www.ifo.de). The outlook for the German economy is also optimistic. In December the Ifo Business Climate Index improved again slightly following the sharp rise recorded in the previous month.

Income expectations: declining from a very high level

After the extremely high gains in the previous month, income expectations declined once more. However, the fall of -5.7 points is much smaller than the increase of more than 12 points recorded in the previous month. As a result, the indicator currently stands at 39.5 points, which nevertheless is a rise of more than 18 points year-on-year. Consequently the indicator is still trending slightly upward.

Income sentiment did not benefit from the improving economic outlook this month. The assessment of future income development is also possibly being influenced by the Grand Coalition negotiations. Some consumers obviously fear that the resolutions adopted, such as the mothers' pension or a full pension at 63 years of age with a minimum of 45 contribution years, will mean they will face financial burdens in the future to finance these welfare benefits. The fact that relief on social security contributions, as would have been possible at the moment on pension insurance, has not been carried out is presumably already putting a damper on income expectations.

Willingness to buy: tops seven-year high

Despite the current fall in income expectations, the willingness to buy indicator rose again in the last month of 2013. With a gain of +0.4 points, the level slightly topped the seven-year high of November. A higher value was last recorded in December 2006, just before the VAT increase.

The consumption mood is therefore stabilizing at an extraordinarily high level. The ongoing favorable employment situation and associated considerable increases in income for those in employment are the key pillars supporting willingness to buy. A stable labor market allays employee fears of job losses, which in turn provides the planning security that is an important criterion when making larger purchases.

Moreover, the willingness to buy may well be receiving support from its counterpart, the propensity to save. This indicator registered considerable losses again in December and fell to a new historical low.

Consumer climate: good start to the new year

Following a value of 7.4 points in December, the overall indicator is forecasting 7.6 points for January 2014. The consumer climate is therefore off to a good start in the new year as this is its highest level since August 2007.

At the moment, the positive framework conditions in Germany, such as the labor market and income development as well as moderate inflation, are providing key stimuli for consumption. In addition, extremely low interest rates are bolstering domestic demand as they make saving less attractive to investors and also encourage credit financing for purchases.

GfK is confirming its forecast that private spending in Germany will increase by around one percent in real terms in 2013. Since the improvement in GDP is only predicted to be just under 0.5 percent in 2013, consumption will register clear above-average increases and will be the decisive pillar of the economy this year.

The consumer climate is off to a good start in 2014, which also signals that domestic demand will play a key role in the coming year as well.

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.

Source: http://www.internationaltradenews.com/en/news/52352/Germany-Consumer-climate-continues-to-climb.html
Contribute Copyright Policy
Germany: Consumer Climate Continues to Climb
Topics: Light Industry