German consumer sentiment jumps to six-year high

Prospects of faster recovery and recent ECB interest rate cut increase morale

Wed, Nov 27, 2013, 11:49

German consumer sentiment rose to its highest in six years going into December, supporting the view that strong consumption will make up for weaker exports and help Europe’s largest economy post moderate growth this year.

The GfK market research group said today its forward-looking consumer sentiment indicator, based on a survey of around 2,000 people, rose to 7.4 going into December from an upwardly revised 7.1 the previous month.

It was the highest reading since August 2007. “The consumer climate is posting a little year-end final spurt,” said GfK’s Rolf Buerkl in a statement.

“The prospects of a faster revival of the German economy as well as the (European Central Bank’s) interest rate cut are giving an extra impetus to consumer sentiment at the end of the year.”

Traditionally big savers, the Germans have become more willing to spend as the jobs market remains stable and low interest rates make saving less attractive. That bodes well for Christmas trading, said GfK retail expert Wolfgang Adlwarth, predicting Germans would spend €288 each on Christmas presents this year, almost 1 per cent more than last year.

Their propensity to spend, which has already risen, increased again in November to a seven-year high, helped by another interest rate cut from the ECB, GfK said. The related index climbed to 45.7 from 44.4 in October. A sub-index tracking consumers’ income expectations also jumped.

The survey chimed with data last week showing that companies’ expectations were at their highest since spring 2011 and were the most upbeat about their current situation since June 2012. More than half of German blue-chip companies have reported better-than-expected results in recent weeks. GfK reiterated its forecast that private consumption would rise by 1 per cent this year, double the near 0.5 percent overall economic growth it expects.

It said spending would rise next year too, but declined to give any figures. The consumer climate could be boosted further by news on Wednesday that Chancellor Angela Merkel’s conservatives and the centre-left Social Democrats (SPD) have a clinched a coalition deal that rules out tax hikes.

“The fact that it now won’t come to tax increases is a positive sign for consumer morale, I would say,” GfK chief executive Matthias Hartmann told journalists in Frankfurt. Foreign trade was actually a drag on gross domestic product (GDP) growth in the third quarter and data showed last week that the economy was being propped up by domestic demand. Still, with exports traditionally the backbone of the German economy and the country posting a record current account surplus, the European Commission is investigating whether Europe’s bulwark economy is relying too much on exports.