German consumer sentiment hits highest level in six years

German consumer confidence rose to its highest level in six years heading into October, supporting expectations strong consumer spending will help Europe’s largest economy to post moderate growth in 2013.

GfK market research group said today its forward-looking consumer sentiment indicator, based on a survey of around 2,000 people, rose to 7.1 going into October from an upwardly revised 7.0 the previous month.

The original September figure was 6.9 and analysts had forecast the October reading at 7.0. The strengthening data chimed with other recent releases suggesting gradual but steady growth for the end of the year.

“German consumers are expecting the economy to gain momentum in the next few months,” GfK said in a statement. “There is a clear upwards trend.” Germans, traditionally savers, became more willing to spend in September than at any point since December 2006, encouraged by an essentially stable job market and historically low interest rates. Saving appeared less attractive as inflation overtook bank interest rates.

A sub-index tracking consumers’ income expectations eased, albeit from a high level, due to rising food prices, which dampened perceived purchasing power. “It’s also possible that some consumers fear further financial burdens due to the euro crisis or tax hikes,” the GfK said, referring to the outcome of the German election which was still uncertain at the time of the survey.

Angela Merkel’s conservatives romped to victory in Sunday’s election, winning 42 per cent of the vote, but are in need of a coalition partner after falling just short of a parliamentary majority.

The chancellor appeared headed towards coalition talks with her main centre-left rivals the Social Democrats (SPD), who had campaigned on a platform of tax increases for Germany’s highest earners. Concern over income was offset by strong willingness to buy, which the GfK dubbed “euphoric”.

The GfK reiterated its forecast for private consumption to grow by around 1 percent in real terms in 2013, a sign that the German economy is on track to grow moderately this year.

The Berlin-based economic think tank DIW forecasts that the economy will expand by 0.4 percent in 2013, and 1.7 percent in 2014. A bastion of strength in the early stages of the euro zone crisis, the German economy shrank at the end of last year and narrowly avoided recession early in 2013 before bouncing back.

Recent data from Germany has been mixed, with the private sector expanding, unemployment falling and business sentiment brightening, though industrial data has been weak and exports have dropped.

Consumers' view of the economy in September improved significantly from the previous month to hit 10.7 points, its highest level since May 2012. Separately, according to the Ifo Institute business morale improved slightly to its highest level in 17 months in September.