German consumer climate improves again

German consumer climate improves again

The FINANCIAL -- The consumer mood in Germany has stabilized in March after the previous month's minor setback.

Both economic and income expectations, as well as propensity to buy, are on the increase again. GfK forecasts an increase in consumer climate for April of 0.1 points in comparison to the previous month to 10.9 points.

Apparently the drop in mood in February was just a small dip, even if the losses from the previous month have only partly been compensated for. The decision of SPD party members to enter into the Grand Coalition did not have any significant extra effect on the mood. This was demonstrated by separate data analyses for the periods before and after the result was made public. Overall, consumer optimism remains very high. The buying mood is as well.

Economic expectations stabilize with modest gains

The considerable fall in economic expectations that took place in February is not currently continuing. Following a small amount of growth of 0.3 points, the indicator stabilized at the end of the first quarter at 45.9 points. In addition to this high level, a plus of nearly 28 points over the same month in the previous year buoyed the continuing major economic optimism in Germany.

The German economy is currently running soundly and at full throttle. This is how consumers see it, too. They assume that this will also be the case in the upcoming months. The excellent jobs market in particular is the critical reason for their optimism. According to forecasts, this year the employment numbers should again increase by about half a million, and the number of those registered as unemployed should again drop slightly.

As a result, experts expect that the gross domestic product shows development equally as good as in the previous year. In 2017, the German economy grew by 2.2 percent according to estimates of the Federal Statistical Office. The ifo Institute even assumes in its most recent economic forecast that growth in this year will reach 2.6 percent.

Slight increase in income expectation

A possible downward trend in income expectation has also been stopped for the time being. The indicator rose by 1.1 points and now stands at 54.9 points. Its very good position is also demonstrated by a gain of 11.5 points over the comparable time period in the previous year.

Based on a very stable job market, consumers also continue to expect strong development in income. Moderate inflation in the coming months also supports this assessment. The strong demand for workers in many parts of the economy also creates space for wage and salary raises. And the statutory pensions also benefit from positive wage development. Statutory pensions should increase by a good three percent starting in July of this year. So both workers and retirees will have noticeably more money in their pockets.

Propensity to buy makes up for most of the previous month’s losses

The largest gains of the three mood indicators were in propensity to buy this month. With a plus of 2.8 points, this indicator was able to make up a good portion of its losses from February. That month had a loss of 4.1 points. It now is at 59.1 points, nearly four points higher than before the end of last year. With this gain, consumer mood continues its slight upward trend.

Stable economic and income prospects at a high level are bolstering the tendency to buy. The excellent employment situation is currently dampening fears of job losses. This increases the planning security of consumers, which is important when it comes to making major purchases or spending large amounts of money.

Consumer climate climbs again

Following on from 10.8 points in March, GfK is predicting a value of 10.9 points for April 2018. With that, the consumer climate will return to its upward track. The further prospects for domestic growth in this year thus remain very favorable. GfK reaffirms the forecast it made at the start of the year, whereby the real private consumer expenditures in 2018 will increase by about two percent, close to the growth in the previous year, which was nearly two percent as measured by the Federal Statistical Office.

This forecast presumes that Germans will be mostly spared from any escalation of possible risks. US trade policies are currently considered to be the greatest threat. For example, if protectionist trends in the US result in a trade war, in which Germany would definitely be affected as an exporting nation, this would also noticeably influence the predicted consumer climate and the forecasted consumer growth would surely not be maintained.