The FINANCIAL — Overall, consumer confidence improved slightly in February. For March, the overall indicator is forecasting 9.5 points in comparison to 9.4 points in February. There is a noticeable rise in income expectations but hardly any change in the economic outlook. The propensity to buy remains stable.
The February findings of the survey indicate that the intensive discussions to achieve a permanent solution to the refugee issue are still not having any impact on German citizens. It is clear that even the continued acute terror threat has done little to sway consumer confidence.
Economic Outlook Virtually Unchanged
After slight growth in January, there is no major change in the economic outlook at present. The indicator has lost only 0.8 points and is now at 3.4 points. It may therefore remain in a positive range, i.e. above its long-term average of 0 points. It is, however, almost 24 points below the corresponding figure for last year.
Despite the latent terror threat, heated discussions about limiting the influx of refugees and increasing tension on the world’s stock markets, consumer behavior is such that this year, the German economy can again be expected to experience solid growth of almost 2 percent.
A major reason for this optimistic outlook is the continued excellent state of the German labor market. Although there was a seasonal rise in unemployment in January, when adjusted for seasonal factors, it actually fell further. Demand for new employees also continued to rise based on figures from the Federal Employment Agency at the start of 2016. Thus, consumers’ cautious optimism about the economy is not unfounded.
Significant Improvements in Income Expectation
After moderate losses last month, income expectation rose noticeably again in February. It clearly performed the best out of all the sentiment indicators. The increase is obvious with a rise of 9.5 points. The indicator is currently at 56.7 points. The last time a higher figure was recorded was in July 2015 at 58.6 points.
Rising employment and companies’ increasing demand for workers are raising expectations for the forthcoming round of wage negotiations. This means the demands of unions will probably be in the range of 5 percent, although the actual increase achieved in wage negotiations will probably be less.
In nominal terms, disposable household income is expected to increase by around 3 percent this year according to current forecasts. Inflation, which was 0.3 percent in 2015, will also remain low this year. Consequently, in real terms, German citizens will have noticeably more money to spend.
Propensity to Buy Remains at a High Level
German consumer confidence continues unabated. The propensity to buy indicator in February is exactly the same as last month at 52.7 points. This confirms its very high level.
The reason for this high appetite for consumption continued to be present, namely, an extremely stable job situation, so that employees do not need to fear for their jobs. This makes them feel secure enough to make plans and is a particularly important factor when it comes to making major purchases or spending large amounts of money. People who assume that their job, and consequently their income, is safe for the foreseeable future are more likely to take a financial risk in the form of spending more money.
Slight Rise in Consumer Climate
For March 2016, the overall indicator is forecasting 9.5 points in comparison to 9.4 points in February. Therefore, the consumer climate may increase slightly again.
The pleasing start to the consumer climate this year has paved the way for 2016 to also be a good year for consumption. In its recently published forecast, GfK assumes that actual private consumer spending will rise by 2 percent this year. Growth for 2015 was also around 2 percent according to initial reports from the Federal Statistical Office.
The forecast growth for this year should be considered a conservative estimate, as GfK sees some risks for 2016, but these are mainly from outside:
The as yet unsolved refugee crisis with some countries possibly being blocked off and closing their borders would particularly affect Germany as an export nation and would reduce economic prospects. In addition, there is the acute terror threat, which could sway consumer confidence and have a negative impact on consumption.
Another issue is falling energy prices, which have so far supported the economy. In the medium and long term, however, this could affect the propensity to invest in affected industries, thus impacting the labor market negatively and even causing employees who are not directly affected to fear for their jobs. This would also have a negative impact on the propensity to consume.
Ultimately, the ongoing economic downturn in the emerging economies such as Brazil, Russia, and particularly China could cause lasting damage to export prospects and consequently economic prospects in general.
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