German consumer climate: Consumers make an optimistic start to the new year

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The FINANCIAL — Consumer optimism rises again at the beginning of 2018. Both economic and income expectations, as well as propensity to buy, are on the increase in January. GfK forecasts an increase in consumer climate for February 2018 of 0.2 points compared to the previous month to 11.0 points

Consumers in Germany are making an extremely optimistic start to 2018. They see the German economy as experiencing a clear economic boom. Economic expectations have clearly risen accordingly, climbing to a new seven-year high. Income expectations and the propensity to buy are also showing moderate growth. They have improved slightly on what was already a very high level, according to GfK.

Economic expectations with clear growth

The economic expectations of consumers are currently only moving in one direction – upwards. In January, the indicator rose for the third time in succession and climbed to 54.4 points. This is a plus of 9.2 points compared to the previous month and represents the highest level since February 2011, when it stood at 57.1 points. In the meantime, there has been a rise of almost 33 points compared to last year.

According to consumer estimates, the German economy is currently running very soundly and at full throttle. Consumers expect this to continue through the year ahead. This euphoria can be explained primarily by the continued excellent job market situation, which is likely to get even better this year. Rising employment, falling unemployment and a generally high number of job vacancies all give cause for optimism.

However, it is possible that the introduction of exploratory talks for continuing the grand coalition has given the economic forecasts an additional boost.

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This is supported by data from the German Office of Statistics, which recently published preliminary figures on the gross domestic product for 2017. This showed that the German economy grew last year for the eighth time in succession. The increase of 2.2 percent was even higher than the 2016 figure of 1.9 percent.

Income expectations show moderate increase

Following clear increases in the previous month, income expectations grew again in January 2018. With an increase of 2.5 points, the second rise in a row was, however, relatively moderate. The indicator is currently at 56.8 points.

The strong performance of the economy is the linchpin of the current income optimism. The high demand for workers feeds the hope that there is likely to be a considerable increase in income, which will only partly be devoured by inflation. Rising wages and salaries lead, with a slight time delay, to corresponding pension increases. Potential income figures could get an additional boost from the ongoing tariff negotiations in the metal and electrical industries.

Propensity to buy is again on the rise

After two slight dips in succession, the propensity to buy has risen again at the start of this year. Compared to December 2017, there has been a rise of 3.3 points. With a current total of 60.4 points, the indicator has climbed to a level it last exceeded in May 2015. At that time, it stood at 62.6 points.

In the wake of rising economic and income expectations, consumer sentiment is also improving on its already high level. The successful start to the year could also set the trend for retailers. However, here the bar is set very high. Based on the first eleven months of 2017, the German Office of Statistics estimates that retail sales last year rose nominally by between 4.5 and 4.9 percent (a real-time increase of between 2.7 and 3.1 percent) compared to 2016.

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Consumer climate is on the rise

Following on from 10.8 points in January, GfK is predicting a value of 11.0 points for February 2018. With the second rise in a row, the consumer climate confirms the good start to the year and lays an excellent foundation for a successful consumer year in 2018. The data available to date suggest that 2017 can be described as a generally good year for private consumption. The real amount of private consumer spending last year rose by two percent. This would even exceed the forecast made by GfK at the beginning of 2017 of around 1.5 percent.

Even if the signals for consumption are currently showing green, there are still certain risks. In particular, the US trade policy with its threatened protectionist trends and the sluggish progress made in the Brexit negotiations could depress the consumer climate as the year unfolds. In addition, the negotiations to form a government in Germany need to be brought to a prompt and successful conclusion. Rising uncertainty would have a negative impact on the consumer economy.


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