The FINANCIAL -- Consumer confidence is starting 2017 on an extremely positive note. Both economic and income expectations as well as propensity to buy have improved. The overall consumer climate indicator is forecasting 10.2 points for February 2017, following 9.9 points in January.
At the beginning of 2017, consumer mood, which was already at a good level, improved even further. For example, economic expectation climbed for the fourth time in a row to their highest point in one and a half years. As a result of better income prospects, propensity to buy grew significantly in January. As such, the start of 2017 was, in the view of consumers, a resounding success, according to GfK.
Economic expectation: fourth rise in a row
The increasing economic optimism that has been observed since fall of last year is continuing into the new year. After gaining 5.2 points, the economic indicator has now reached 21.6 points. This is already its fourth rise in a row, and it is now at its highest point since June 2015, when it stood at 24.9 points. It is now over 17 points higher in comparison with the same period in the previous year.
Consumers believe that the German economy's solid growth trend is set to continue. This assessment is supported by the German Federal Statistical Office's first gross domestic product (GDP) calculations, which were recently published. According to these calculations, GDP rose by 1.9 percent in real terms in 2016. This is the strongest growth that has been measured since 2011, when an increase of 3.7 percent was recorded.
It is therefore apparent that consumers are continuing to brave the storm triggered by the insecurity regarding the future actions of the new US President and the outcome of Brexit. In addition, it is clear that the terrorist attack in Berlin just before Christmas did not impair economic optimism in the long term. Consumers see the stable labor market conditions, increased rates of employment, and the resulting favorable income growth as significantly more important.
Income expectation consolidates its upward trend
After the significant growth recorded at the end of 2016, income expectation experienced further moderate growth at the start of 2017. The indicator rose by 2.7 points and now stands at 58.3 points. The slight upward trend has therefore continued. In comparison with the previous year, income sentiment is higher by a good 11 points.
The reasons behind the strong optimism regarding income are clearly apparent. Thanks to the strong employment trend, there is considerable scope for employees to experience income growth, and since the rate of employment will continue to grow this year, employees can expect to benefit from this as well. Their expectations are therefore correspondingly high.
However, due to the recent increase in inflation in Germany, there is a greater risk of income suffering in real terms. As a result of higher energy and food prices, inflation jumped to 1.7 percent in December 2016.
Propensity to buy enjoys a distinct improvement
After propensity to buy underwent a moderate decline in December of last year, it showed notable growth at the beginning of this year. The indicator rose by 9.6 points to reach 57.6 points, improving on its already very high level.
GfK's forecast for private consumption in 2016 was accurate
Consumer mood remained strong after Christmas and is presenting itself in its best light. This high propensity to buy is also evident in reality. For example, actual private consumer spending rose by 2 percent last year according to the first provisional data issued by the German Federal Statistical Office. This precisely matches the forecast made by GfK at the beginning of 2016.
High employment, clearly growing income, and low interest rates were the primary contributors to German consumer confidence.
Consumer climate consolidates its upward trend
The overall index is forecasting 10.2 points for February 2017, following 9.9 points in January. With its third rise in a row, the consumer climate is continuing its moderate upward trend. As such, good initial circumstances have been established for consumption in 2017.
Even if domestic conditions such as high employment, rising income, and low interest rates remain favorable, there are still various risks to a good consumer mood. In addition to the insecurity regarding the future actions of the new US administration and elections in important European countries such as France, Germany, and (probably) Italy, rising inflation, and the start of the Brexit negotiations could undermine consumer confidence.