The FINANCIAL — Overall, consumer sentiment in Germany weakened slightly in September. The overall consumer climate index is forecasting 10.0 points for October, following 10.2 points in September. Both economic and income expectations, as well as propensity to buy suffer losses.
It would seem that German citizens believe that their country’s economy is set to develop more weakly over the next few months. This is signaled by the third successive drop in economic expectations. Although the income expectations and propensity to buy indicators also recorded losses this month, they remain at an extremely high level, according to GfK.
Economic expectations suffer third consecutive decline
It appears that consumers feel the German economy will develop somewhat more moderately in the coming months. The indicator fell by 1.8 points in September to 6.8 points. This marks the third decline in a row. Despite these losses, economic expectations remain clearly above zero, in other words, above their long-term average of 0 points.
It looks as if the Brexit decision from June has now started to have an impact. In the three months since the referendum, economic expectations have continuously fallen. The announcement that Great Britain will leave the EU has caused uncertainty to rise. This has also led to the Ifo Business Climate Index falling in July and August.
Another consequence is that the forecasts for the growth of European gross domestic product were recently somewhat downgraded. In its economic outlook for Germany, the German Federal Bank has also slightly cut its figures for economic growth for this year and the next in comparison with the forecasts issued a few months ago.
Moreover, consumers are undoubtedly feeling more unsettled due to the greater public awareness of the terror threat following the attacks in Bavaria. A general feeling of uncertainty such as this is often associated with a drop in economic expectations.
Fluctuating income expectations continue
The regular increases and decreases in income expectations continued in September. After growing last month, this month the indicator lost 5.7 points. However, this has only erased some of the noticeable gains of 8.6 points recorded in August. As a result, at 52.6 points, the income expectations indicator remains strong above the 50-point mark.
Consumers are and indeed seem set to remain very optimistic when reflecting on their future financial situation. They have good reason to feel this way. The very stable developments on the labor market coupled with a rising rate of employment are even resulting in noticeable increases in collectively agreed wages. What’s more, thanks to the very low inflation rate, employees also have more in their wallets in real terms.
Since increasing wages also have a positive impact on state pensions, people in retirement are also optimistic for the future in terms of their finances.
Propensity to buy: at the same pace as income expectations
Like income expectations, propensity to buy also declined slightly this month. The indicator fell by 4 points to 53.3 points. However, as is the case with income expectations, the desire to make purchases is still very high and has remained above the 50-point mark.
Here, too, we are not seeing any reversal of trend, as consumers’ inclination to buy remains intact. Provided that the labor market continues to run smoothly and employees are consequently not worried about their jobs, the signals for consumption are expected to stay on green. This is made even more likely by the fact that conditions for saving – the antithesis of spending – are anticipated to remain unfavorable given the persistently low interest rates. The most recent indications from the European Central Bank suggest that interest rates will remain rock bottom in the months to come. This is also implied by the recent extension made to the ECB’s bond purchase program.
Consumer climate is stable despite slight losses
The overall index is forecasting 10.0 points for October 2016, following 10.2 points in September. Despite this small decline, the consumer climate remains stable at a strong level.
The current decline is, however, indicative of how consumer sentiment is not completely immune to the prevailing rise of uncertainty, which also seems to be affecting consumers. This uncertainty is first and foremost being fueled by the greater perceived terror threat in Germany as well as by the decision made by the British public to vote to leave the European Union. The consequences of this for the European and, above all, German economy are still completely unclear.
Nevertheless, GfK confirms its forecast that a rise in real private consumer spending of around two percent in 2016 appears achievable and realistic. Consumption therefore remains an important pillar of economic growth in Germany.
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