No Change in Consumer Confidence in Germany

Consumer confidence in Germany has not improved since the beginning of 2002, with the mood amongst consumers remaining hesitant. These are the essential findings of the latest survey on consumer confidence carried out by GfK on behalf of the EU Commission in January 2002.

Germans are particularly pessimistic when it comes to economic development in Germany. Expectations have rapidly deteriorated since mid 2000 and now stand at -23, a level almost as low as that in the recession of 1992/93. Although the index has risen slightly in the last couple of months, it would be premature to speak of an upturn in the economic scenario at this stage.

Given the downturn in the global economy, which has also resulted in a higher level of unemployment in the Federal Republic of Germany in recent months, the uncertainty among German consumers with regard to the economic outlook has, if anything, increased. As economists are not predicting a sustained improvement in terms of economic growth and employment for this year, no improvement in the economic climate in Germany can be expected in the short term.

In addition to expectations concerning the economic outlook, consumers were also asked to outline their income situation. Despite the fact that their expectations with regard to salary increases have been corrected downwards following the overall downturn in the economy since spring 2001, Germans on the whole remain positive. In line with these developments, the index for income expectations dropped by a total of 30 index points in 2001. However, in a long term comparison, the index remains at a satisfactory level. At almost 9 points, the index is currently above the average zero points it stood at for many years.

The financial benefits resulting from tax reforms in 2001 are a major reason for the good overall level. However, the development in the labour market throughout 2001, in particular, has led to consumer expectations being low in terms of their income. Certain factors are likely to have a counter-effect on the development over the coming months.

On the one hand, consumers have been faced with a number of cost increases this year, including the rise in health insurance contributions and the eco tax, while the difficult labour market is having an adverse effect on the general mood. On the other hand, interest rate cuts should contribute to stabilising incomes and therefore purchasing power. Generally, there is no reason to assume that income expectations should worsen, however, it is also unlikely that the general mood will generate any major economic impetus.

In addition to income expectations, the consumption or buying propensity of consumers is an important factor when it comes to private consumption. At the beginning of this year, there was a dramatic downturn in this respect. Apparently, in January a large number of consumers came to the conclusion that this was not a good time for major purchases.

It is thought that the recent introduction of the Euro is one of the reasons for the surprisingly sharp decrease in buying propensity. A relatively high number of respondents suspected that retailers would use the Euro to apply hidden price increases. Any major purchases planned were either made hastily before the end of the year or postponed to a later date. Given the satisfactory level in Christmas business overall, it can be assumed that purchases were made earlier. Overall, the downturn in the propensity to buy is likely to be a one-off situation.

In view of the current mood among consumers, the level of private consumption is unlikely to experience any major impetus this year, although a further drop does not seem on the cards either. Whether or not consumption in Germany will experience considerable growth depends largely on the employment situation. Fear of job losses is resulting in greater uncertainty among consumers. Consequently, there is the danger that they will be more hesitant in terms of purchasing decisions than their actual income requires.

The above findings are taken from the survey entitled 'GfK-Wirtschaftsdienst Konsum- und Sparklima' (GfK economic services - consumption and savings climate). The survey is based on monthly interviews with consumers, which are carried out on behalf of the EU Commission. In the first fortnight of January 2002, a representative sample of around 2,500 selected respondents were asked using a rota system about their views on the general economic situation and how they saw their own financial situation.

All articles 2006-22 written and edited by Mel Crowther and/or Nick Thomas unless otherwise stated.

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