German Consumers Cautious as They Await Reforms

German consumers currently have low expectations of general economic development and their own finances, and are remaining reticent when it comes to making purchases, according to the GfK financial services, consumer and savings climate survey published by GfK Marktforschung. The mood is unlikely to change much before 2004.

While the consumer mood of the past four months has echoed that of companies, which, according to the ifo business climate index, has been increasingly optimistic, this month shows a marked change of mood. Companies remain positive about the general business climate positively, but consumers appear more sceptical again.

The index for consumer expectations of economic development is at 10.5 points for October - in June to August the economic outlook indicator rose by nearly 20 points but it has stopped rising, and is down by 12 points compared to October 2002.

The continued controversial debate about social reforms and the consequences of the imminent tax reform are having a negative effect on the consumer mood in Germany. It looks as though any economic recovery is a long way off. Flat economic growth is forecast for this year and in 2004 that the economy is expected to grow by 1.7%, not enough to reduce unemployment.

Expectations for personal finances cooled in October - at 6.9, the indicator was down by a good 6 points in October, more than compensating for the 5-point rise of the previous month. Initial hopes after the German government's announcement about imminent tax reform have largely dissipated as discussion continues on the financing of the reform, being replaced by fears of additional strains. At the moment, consumers are completely in the dark as to what changes there will be to their income situation at the beginning of 2004, as witnessed in the lack of a clear trend in the index.

Unsurprisingly given economic stagnation, the continued high level of unemployment, and uncertainty over pensions, consumers are still reluctant to buy - a feeling evident for nearly two years now. The buying propensity indicator has recovered slightly in October, by 0.7 points to 30.9, but this remains low - not very promising for retailers in the next few months.

It is likely to be the end of the year before the financial consequences of the reform plans currently being discussed become clear, and GfK suggest that the consumer climate may be 'in hibernation'.

Results of the 'GfK-Wirtschaftsdienst Konsum- und Sparklima' survey (GfK financial services, consumer and savings climate) are based on around 2,000 consumer interviews carried out on behalf of the EU Commission in the first half of each month. Results are published by GfK Marktforschung, and questions are as follows:

'How do you think the financial situation of your household will develop in the next 12 months?' (improve / stagnate / deteriorate)

'How do you think the general economic situation will develop in the next 12 months?' (improve / stagnate / deteriorate)

'Do you think it is advisable to make major purchases at the moment?' (good time / neither good nor bad time / bad time).

All articles 2006-23 written and edited by Mel Crowther and/or Nick Thomas unless otherwise stated.

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