Gloomy Mood in Germany

The debate concerning increased rates of tax and contributions after the parliamentary election a month ago is having a negative effect on German consumers. This is one of the results of the survey on the consumer climate commissioned by the EU Commission and carried out in October by GfK Marktforschung.

The indicator of business cycle expectations dropped by just under ten points in October. This is an indicator which GfK uses to measure consumer opinion on future economic development in Germany. At 1.5+, consumer assessment of the business cycle climate is only just above the long-term average of zero points. The clear downturn in indicator value observed in October has reversed the long-term trend in the business cycle climate, which is now negative for the first time.

Evidently, consumers do not currently believe that any improvement can be expected in the business cycle climate in the short term and that consequently, the situation on the job market will not improve. Presumably, the publicly debated proposals made after the election by the new government on tax and contributions policy deductions have contributed to the growing pessimism.

The strongest drop in confidence in October related to the expectations consumers have concerning their income. With a fall of a good 15 points, the indicator reached its lowest value for five years, dropping to the negative zone again for the first time. In the wake of the postponement of tax reform by one year, consumers are assuming that the already agreed tax and contributions plans of the newly elected government will lead to a further drain on their household budgets. The cutting of tax allowances and the increase in the rate of tax payable, as well as the imminent increase in pensions and health insurance contributions have dealt a major blow to expectations in terms of income.

Dwindling business cycle optimism and lower income prospects have made sure that consumer willingness to buy dropped another two points in October. The downward trend in consumer purchasing is therefore stagnating at a historically low level.

The consequences of this scepticism on the part of the consumer are that the overall consumer climate is likely to drop slightly in November, with an anticipated indicator fall of 7.3 to 7.2 points. For the consumer climate, the prospects do not appear particularly good, at least for the next few months. Although the impact of the flood disaster on the economic climate has been only minimal, the current debate surrounding tax and contribution increases has caused a downturn in consumer mood. In addition, according to the current economic research reports, the assumption is that unemployment is unlikely to fall in the coming year as well. In such circumstances, German consumers are likely to remain cautious about consumption.

These findings come from the GfK economic data services survey on the consumer and savings climate published by GfK Marktforschung. The survey was based on monthly consumer interviews commissioned by the EU Commission. In the first half of October 2002, a representative selection of approximately 2,000 people were canvassed for their opinions on the overall economic situation, their willingness to buy and their expectations as far as their income was concerned

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

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