The FINANCIAL — Consumer mood is improving as the end of the year approaches. After four declines in a row, the consumer climate is rising again slightly. The overall indicator is forecasting 9.4 points for January 2016 compared with 9.3 points in December. Both economic and income expectations are significantly on the up. Propensity to buy confirms its extremely high level with almost no change.
The terrorist attacks in Paris in mid-November and the resulting increased terror threat in Germany do not seem to be impacting German consumers. Consumer mood has been continuing to improve in the last month of this year, according to GfK.
Decline in economic expectations halted
After six declines in a row, economic expectations ended their decline in December. The rise is significant at 8.2 points. The indicator has climbed to 2.9 points, thereby becoming positive again. This is higher than the long-term average of 0 points.
Economic sentiment remains unaffected by the recently increased terror threat. The threat level in Germany had intensified following the attacks in Paris on November 13 and Germany’s stronger involvement in the fight against IS.
Thus, the good conditions domestically seem to be reassuming more importance. In the view of the German Council of Economic Experts regarding macroeconomic development in 2016, GDP will, at 1.6 percent, increase by about the same extent as in this year. As a consequence, employment will also continue to grow. Thus, consumers’ concern that they may lose their jobs can continue to remain low. This in turn is supportive of economic optimism.
Income expectations are markedly on the up
Given an improved economic outlook, income expectations are also rising. This indicator also shows an increase of 6.4 points, taking it to 50.8 points. Thus, the indicator is again over the 50-point mark, which it last managed to exceed in August of this year with 53.5 points.
The strong optimism about income is not without reason. For one, the employment market looks extremely robust, so workers have almost no need to fear losing their job and thereby a considerable part of their income.
The indicator has additional impetus from the good income development of workers. Nominal wage growth is about 3 percent. In addition, the price of energy, such as gasoline and heating oil, has fallen significantly recently. This is causing extremely low inflation and thus significant real income growth.
Propensity to buy remains stable at a high level
Propensity to buy has been able to maintain its very high level in December because of rising economic and income expectations. The indicator is marginally up by 0.1 point, thus achieving exactly 49 points. It is thus at almost the same level at the end of 2015 as it was in the previous year.
German consumers are clearly not allowing their consumer sentiment to be dampened by the refugee crisis and terror threat. A stable employment market and the prospect of continuing rising income in the coming months enable planning security. This is particularly important for large purchases, especially when the payment is being financed with credit.
In addition, the expansive monetary policy of the European Central Bank (ECB) is ensuring that interest rates continue to remain extremely low. This allows people to suppress their propensity to save. Saving for a rainy day is not seen as an attractive alternative to consuming so consumers are tending to spend money accordingly. The raising of the key interest rate in the USA will also not change this for the time being.
Consumer climate ends downward trend
The overall indicator is forecasting 9.4 points for January 2016 compared with 9.3 points in December. Thus, the consumer climate has ended its four-month downward trend for the new year.
With this positive start to the new year, there is a basis for 2016 to be a good consumption year. Domestic demand will continue to provide important support for the economy in Germany. This opinion is held by the research institutes as well as the German Council of Economic Experts in their latest published forecast.
Possible risks for consumer mood could arise from the difficult international situation in particular. The crises taking place internationally in various trouble zones, particularly in the Middle East, the resulting refugee crisis, and a rising terror threat could cause consumer confidence to falter again if they intensify, thus dampening the consumer climate.
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