The FINANCIAL -- The upswing in mood among German consumers continues in June this year. Both economic and income expectations, as well as propensity to buy, are on the rise. GfK predicts an increase in consumer climate of 0.2 points to 10.6 points for July compared to the previous month.
German citizens view the domestic economy as being in excellent shape at the start of the summer. This is shown in the significant increase in economic expectations in June, taking them to a three year high. Income expectations are increasing moderately and have even climbed to their highest level since the German reunification. Propensity to consume is able to benefit from this with moderate growth.
Economic expectations showing considerable gains
From the point of view of the consumer, the German economic engine is still accelerating. Economic outlook climbs in June for the fourth time in a row. After gaining a significant 6.5 points, the indicator has now reached 41.3 points. This is the highest level for almost three years. The last time a higher value was measured, was 45.9 points in July 2014.
Consumers believe that the boom in Germany is gaining traction despite global economic risks. A weak euro, low oil prices and the European Central Bank’s expansive monetary policy all ensure that the economic engine continues to gain pace. Even the uncertainties of possible US Government trade restrictions and the beginning of Brexit negotiations cannot tarnish this impression at the moment.
Like the consumers, economists are also increasingly optimistic. The ifo institute thus recently adjusted its GDP prediction for this year by 0.3 percentage points from 1.5 percent to 1.8 percent. The ifo institute believes this is not only down to positive domestic economic developments but also to a global economic upturn, from which Germany, as an exporting nation, will profit in particular.
Income expectations at historic peak
As part of this more optimistic economic outlook, income expectation also grows in June. An increase of 1.7 to 60.2 points may be relatively moderate, but it takes the indicator to its highest level since German reunification. A better value has not been registered since records began in the unified Germany in 1991.
The positive outlook for income growth among consumers is primarily based on the excellent condition of the labor market. Employment is still growing noticeably; with the number of people in employment expected to rise by more than half a million this year. Conversely, unemployment is further reducing. According to the Federal Employment Agency, almost 2.5 million people were registered as unemployed in May this year, the lowest number in 26 years.
Propensity to buy at excellent level
Propensity to buy also experienced a slight rise in June to reach an excellent level. The indicator rose by 2.2 points and now stands at 57.9 points. German citizens still have superb consumer confidence.
An incredibly stable labor market with bright prospects for employment is the primary reason for the very good tendency to spend. In addition, little fear of losing employment makes for a more secure basis to plan for the future. Among other consequences, this means that consumers are willing to make larger purchases with higher financial risk. In addition, low interest rates ensure that saving is not an attractive alternative to consuming.
Consumer climate is still on the rise
Following on from 10.4 points in June, GfK forecasts an increase to 10.6 points in July. This puts consumer mood in Germany on a continued rise.
GfK confirms the forecast we gave at the start of the year, that real private consumer spending will rise by around 1.5 percent in 2017. Consumption will therefore play an important role in Germany’s expected positive overall economic development.
That is, however, provided that Germany is spared from any larger external shocks. A change of direction in American trade policy by the new President is the primary cause of possible global economic risks. Trade restrictions would hit Germany especially hard as an exporting nation. If employees in export-oriented companies started to worry about their jobs as a consequence of these trade restrictions, this would be tied to greater caution in making purchases. This would have a correlating negative effect on the consumer climate in Germany.