The FINANCIAL -- The very positive mood among German consumers continues into July, too. Both economic and income expectations increased again, while propensity to buy dropped somewhat from its previously excellent level. GfK predicts an increase in consumer climate of 0.2 points to 10.8 points for the month of August compared to the previous month.
Consumers are expecting that the domestic economy can even pick it up a notch over the course of the remaining year. Economic expectation continues to rise, and income expectation has surpassed its post-reunification high of last month. Consumer mood, however, suffered a few minor blows, but still remains at a high level.
Economic expectation still on the rise
Based on the estimations of German consumers, the German economy will develop positively over the further course of the remaining year. Economic outlook climbs in July for the fifth time in a row. The indicator rose by 3.3 points to reach 44.6 points. With that increase the economic outlook reaches a new three-year-high. The last time a higher value was measured, was 45.9 points in July 2014.
In the opinion of consumers, the German economy is now firing on all cylinders. Unemployment is reaching new lows month by month, and employment continues to rise. This is supported by an expansive monetary policy from the European Central Bank (ECB) and moderate oil prices.
And up to now, consumers have not been intimidated by a number of global economic risks. The start of the Brexit negotiations, the threat of trade tariffs from the American government and the increasingly difficult relationship between Germany and Turkey all represent risks to the economic climate.
Income expectation reaches a new high for post-reunification Germany
The bright economic outlook is also having a positive effect on income expectation. The income indicator was even able to surpass its record value from the previous month just barely. The indicator increased by 0.7 points, reaching a figure of 60.9 points. No better level has been recorded since reunification.
This income euphoria is based on the excellent state of the employment market in Germany, and remains so. According to the Federal Employment Agency, the figures for employment and employment subject to social insurance contributions are continuing to increase. Thus, the number of people employed is expected to increase again this year by more than half a million. Fewer than 2.5 million people are registered as unemployed at the moment. This is the lowest value since 1991.
Minor setbacks in propensity to buy
German citizens still have superb consumer confidence. The minor setback in propensity to buy will hardly change that in July. After a fall of 3.1 points, the indicator is currently at 54.8 points. And German consumer confidence continues unabated.
The very good level of consumer mood is mostly based on the excellent employment situation in Germany. The threat of losing their jobs is very low for most employees. This assurance offers private households planning security for purchases, especially if they are associated with great financial risk.
The propensity to buy is also supported by a very weak propensity to save, which is currently still falling after a significant loss. Saving is and remains a less attractive alternative to consuming due to the low-interest policy of the ECB.
Consumer climate continues to climb
Following on from 10.6 points in July, GfK forecasts an increase to 10.8 points in August. This puts consumer mood in Germany on a continued rise.
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.
Even though the signals for consumption in Germany – such as employment, income and interest rates – are clearly green, further development is not risk-free, especially abroad. The recently started Brexit negotiations, the unclear policy of the American government in terms of trade, and the worsening crisis in the relationship between Germany and Turkey have not yet had a measurable impact on consumer mood in Germany. If that does happen, it could put the brakes on the consumer climate.