The FINANCIAL -- German consumers were still highly confident in May of this year, providing reliable support to the German economy.
This was reflected in heightened expectations of the economy and income. Propensity to buy fell slightly, but still remained at a high level. GfK predicts the consumer climate to reach 10.4 points in its forecast for June, which is 0.2 points higher than in May.
Germans view their domestic economy as definitively on the upswing, even in late spring of 2017. This is evidenced by the improvement in economic expectation in May, which reached a new two-year high. Income expectation also profited with a further increase on its already high level. Although propensity to buy did lose its gains from the previous month, it nevertheless achieved a historically high level in May, also reflecting the good mood among consumers, accrding to GfK.
Economic expectation climbs to a two-year record high
In the view of consumers, the engine of the German economy is running increasingly smoother. The economic expectation indicator increased for the third time in a row with a gain of 4.3 points to reach 34.8. This is the highest level in two years. In May 2015, it stood at 38.3 points.
German consumers also see their domestic economy on a path of growth in the upcoming months, despite global economic risks. Neither uncertainty over the future economic political course of the United States nor the upcoming Brexit negotiations are making any impact.
But this optimism does have a real foundation: According to the first preliminary estimates from the Federal Statistical Office, the gross domestic product (GDP) rose by 0.6 percent in the first three months of this year over the value in the last quarter of 2016, making it somewhat stronger than in both previous quarters, which registered increases of 0.2% and 0.4% respectively. These positive impulses originated both in Germany and abroad, according to the Federal Statistical Office.
Income expectation has stabilized at a very high level
Supported by improving economic forecasts, income expectation also grew. The indicator is at 58.5 points, corresponding to an increase of 1 point compared with April. The last time a higher figure was recorded was in June of 2016 at 59.6 points.
That allowed this economic indicator to better its very good level once again. The consistently well-positioned German labor market situation is largely feeding this optimism. The number of unemployed fell to nearly 2.6 million in April. This was coupled with continued strong improvement in employment figures.
Propensity to buy forfeits its gains from the previous month
Propensity to buy was not able to benefit from the strengthening economic and income forecasts this month. The indicator dropped 4.5 points to 55.7, thereby losing nearly all of the gains made the previous month. Yet the mood of German consumers remains at a historically high level.
An economy on course for growth and bright prospects for employment has employees looking to the future with a healthy dose of optimism. Because fear of job loss remains low, planning security has remained correspondingly high. As a result, consumers also have more money available for larger purchases.
Consumer climate continues its upward trend
Following on from 10.2 points in May, GfK forecasts an increase to 10.4 points in June. This has put the consumer mood in Germany on a clear upward path.
GfK confirms its forecast made at the start of the year, whereby real private consumption will increase by about 1.5 percent this year. This will make domestic demand a crucial pillar of support for the German economy in 2017.
Risks for consumers primarily originate from possible economic political shocks from elsewhere, for example as a result of increasingly protectionist trends in the United States. Should trade barriers or higher duties hinder exports from Germany, it could lead to employees fearing more for their jobs again, especially those working at companies relying heavily on exports. The result would be greater reluctance to make purchases. This would immediately affect the consumer climate.