German consumer morale ‘holds steady’

But crisis in Cyprus could hit confidence in coming months, research group warns

Pedestrians on Friedrichstrasse in the Mitte district of Berlin, Germany. Consumer morale in Germany was stable heading into April, research group Gfk said. Photograph: Krisztian Bocsi/Bloomberg

Pedestrians on Friedrichstrasse in the Mitte district of Berlin, Germany. Consumer morale in Germany was stable heading into April, research group Gfk said. Photograph: Krisztian Bocsi/Bloomberg

Wed, Mar 27, 2013, 11:15

Consumer morale in Germany was stable heading into April but developments in crisis-stricken Cyprus could hit confidence going forward, market research group GfK said.

The forward-looking consumer sentiment indicator, based on a survey of around 2,000 Germans, held steady at 5.9 going into April, helped by an improvement in economic expectations, though consumers became slightly less willing to splash out on goods and were also a bit more downbeat about their future earnings.

GfK said the survey was conducted before the idea of forcing savers to contribute to a Cypriot rescue package was announced so the results did not show any impact from the deepening crisis in Cyprus.

The euro zone agreed on March 16th to demand big and small depositors in banks forfeit some money to stave off bankruptcy but earlier this week decided to penalise large bank depositors and spare smaller accounts holding less than €100,000.

"However, current events in Cyprus may damage consumer trust and become a burden on the consumer climate," GfK said but nonetheless confirmed its prediction that private consumption would grow by 1 per cent this year.

Economic advisers to the German government more than halved their forecast for 2013 growth on Monday as prospects for trade and investment remain weak and said domestic demand would be the main driver of growth.

For a third straight month consumers became more optimistic about the German economy, which contracted by 0.6 per cent in the last three months of 2012 but is expected to have returned to moderate growth in the first quarter of this year.

"The election result in Italy and the subsequent uncertain political future of the third largest economy in the euro zone has so far not caused the once-again mounting economic optimism of Germans to falter," GfK said.

"The ongoing recession in the euro zone and the danger of a renewed eruption of the debt crisis have thus far not been dampening the economic mood."

Other forward-looking sentiment indicators have also pointed to a slight upturn in the economy in the first quarter, although the closely watched Ifo business climate index dipped in March and some economists have said positive sentiment indicators have overshot actual performance.

Hard data has painted a mixed picture of Europe's economic powerhouse, with industrial output stalling and orders sliding, but retail sales rising sharply, already-low unemployment edging down and exports increasing.

Germans remained optimistic overall about their future earnings due to wage rises and moderate inflation, though they saw their future financial situation worsening slightly compared with the previous month.

Unions are pushing for inflation-busting wage hikes this year and regional public sector employees have already achieved a 5.6 per cent raise over two years, while some iron and steel workers secured a 3 pe rcent increase over 15 months.

Consumers' willingness to buy goods dipped slightly on the month, but GfK said their desire to shop was still at a good level due to the stable labour market, easing inflation and the low interest rates being offered by banks.

German retailer Metro last week predicted operating earnings would fall in the coming months, partly as they will be hit by weak consumer spending.

Reuters