The FINANCIAL — Consumer mood in the first survey since the German federal elections is not sending clear signals. Both economic expectations and propensity to buy are on the rise in Germany. In contrast, income expectations fell for the second time in a row. GfK forecasts a slight decrease in consumer climate for November of 0.1 points in comparison to the previous month to 10.7 points.
Even in late fall, consumers estimate that the German economy is clearly continuing to grow. Economic expectations are rising sharply in October, with August’s setback a distant memory. Additionally, propensity to buy more than makes up for last month’s struggles. However, income expectations fell for the second time in a row but are still at a very good level, according to GfK.
Economic expectations back on track
Economic expectations have moved on impressively from the weak phase in August. The indicator in October has increased by 10.1 points, climbing to 43.5 points and this, along with the previous month’s slight gains, have almost completely made up for August’s losses. There has now been a gain of more than 30 points from last year.
These optimistic economic expectations for Germany are now shared by almost all economic experts. This is demonstrated by the fact that growth forecasts for gross domestic product must be widely revised sharply upwards. For example, the German Federal Government’s current fall outlook forecasts that the German economy will grow by two percent this year, after still forecasting a figure of 1.5 percent in April. The International Monetary Fund’s recently published forecast for Germany also predicts that Germany will experience economic growth of two percent this year. The forecast was 1.8 percent as recently as July and just 1.6 percent in April.
These positive outlooks are primarily based on the fact that the upturn in Germany is based on solid and, above all, broad foundations. For example, the excellent labor market ensures solid development of private consumption. The sustained revival of the world economy is stimulating exports and thereby further encouraging investment in Germany.
Income expectations currently weakening slightly
Even though economic expectations have already moved on from their weak phase, it seems as if income expectations remain in the middle of a weak phase. The indicator fell for the second time in a row. It lost 4 points in October, sliding to 48.7 points. However, its level is still very good, as demonstrated by an increase of almost 4 points on last year’s level.
Despite the decrease, German consumers continue to assume that their incomes will still grow appreciably in future. Low unemployment figures ensure that pay increases will also be considerable in the future. Pensioners will also profit from this because their income is linked to wage trends.
However, the topic of inflation seems to be currently of greater concern to consumers. The September rate of inflation of 1.8 percent is currently at a level that does not yet give any cause for concern and has not yet given the ECB any reason to intervene. However, in some consumer-sensitive areas, such as food and fuel, much higher figures are currently being recorded. For example, food prices increased during the year by 3.6 percent, with dairy products, in particular, rising in price by 15 percent. Fuel, such as gas and diesel, increased in price by 4.5 percent in comparison with last year.
Unabated willingness-to-buy
Despite slightly muted income prospects, German consumer confidence continued to be high in fall of 2017. Willingness-to-buy increased by 2.2 points to 59.2 points. In comparison to last year, there is a 9-point increase.
High job and planning security as well as noticeably rising income ensure that consumers tend to be willing to open their wallets and spend generously. This good consumer confidence is also currently being experienced in large parts of the retail trade. For example, retail revenues increased in August by 4.7 percent in comparison with the previous year (in real terms: 2.8 percent) according to figures from the German Federal Office of Statistics. From January to August this year, the growth even amounted to 4.8 percent (in real terms: 3.0 percent). This means, trade is currently much more positive than private consumer spending overall.
Consumer climate: second decline in a row
Following on from 10.8 points in October, GfK is predicting a slight decrease to 10.7 points for November. The indicator has therefore fallen slightly for the second time in a row. Nonetheless, consumer sentiment is still good. The domestic economy will therefore continue to provide a significant indication of overall economic development in Germany.
GfK confirms its forecast made at the start of the year, whereby real private consumption will increase by at least 1.5 percent this year.
Even if the consumption situation in Germany has so far been largely untroubled, there are however certain risks, which mainly arise from the international environment. These are the faltering Brexit negotiations, tensions in North Korea and future US trade policy. It also remains to be seen how coalition negotiations will develop after the German federal elections. If there were to be a protracted deadlock situation, this would probably unsettle some consumers. This would also jeopardize consumer demand, which has been strong so far.
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