Static German Consumer Sentiment

Following a low in October and November, the mood among German consumers did not worsen any further in the last month of 2002. However, talk of a change in trend would be premature according to the consumer climate survey which GfK regularly conducts on behalf of the European Commission.

A weak labour market, feelings of uncertainty as to how the Federal Government's new tax and contributions increases will impact on income, impending conflicts in Iraq and other global regions threatened by international terrorism; these are just some of the major reasons behind German consumers' attitude towards the economy and the general consumer mood. Although the downward trend regarding consumers' propensity to buy which set in after the parliamentary election is now slowing, attitudes are still marked by a certain degree of pessimism and caution.

The continued pessimism among German consumers is most evident in their expectations vis-à-vis future economic development. The economic expectations indicator value dropped by around another point in December compared with November. At minus 26.5, the index value used to measure economic mood stands at the same level as during the weak economic phase in the second half of 2001 and in the recession years 1993 and 1996/97.

One of the major causes of the pessimism displayed by Germans regarding the economy is the negative outlook evident in politics and the economy. There are also further public sector strikes in the pipeline which are threatening to impact on the economic situation. In addition, the unemployment rate continues to climb and there is also the impending Iraq conflict to consider, all of which result in only slight hopes of a tangible economic recovery in 2003 on the part of German consumers.

The indicator value measuring income expectations, which decreased comparatively strongly in November, and rose by 3.1 points in December. This compensated only slightly for the major losses of the indicator value in November. At minus 21.4, the indicator currently stands at the same low level as at the end of 1993/beginning of 1994 and 1996 and 1997.

Following the historical low of the indicator measuring consumers' propensity to buy, this value rose once more at the end of the year and more than made up for the loss of the previous month. The current indicator value is minus 42, but a rise of over 13 points has at least stopped the propensity to buy from spiralling downwards. With regard to future development, however, like income expectations, there is no evidence of a change in trend.

In view of the rather modest expectations regarding increases in income, any rise in consumer propensity to buy is expected to be only moderate. The financial pressures facing households due to rising taxes and social security contributions, coupled with the fear of unemployment, do little to encourage consumers to spend. The only factor which could have a positive impact at the moment is the stable price development in Germany with an inflation rate of over one per cent. Past experience has shown that a lower rate of inflation tended to result in a higher propensity to buy.

The indicators characterizing the present mood among German consumers suggest that the consumer climate in Germany will continue to decline slightly. The outlook for the next few months looks fairly modest, with tax and contributions increases and the weak labour market likely to prevent any sustained improvement in the consumer climate until at least mid 2003. Additional uncertainties, for example the impending war in Iraq, rising oil prices and also potential strikes in the public sector, are also making themselves felt with regard to consumer mood.

The results are based on monthly consumer interviews carried out on behalf of the EU Commission. In the first half of December 2002, around 2,000 representatively selected people were asked about their perceptions of the overall economic situation, their propensity to buy and their income expectations.

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

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