Consumer Mood Unchanged in Germany

At the beginning of 2003, consumer mood in Germany remains virtually unchanged compared with the last few months of 2002. In view of the weak economic situation and the general uncertainty surrounding the conflict in Iraq, consumers are not confident of an economic upswing. These are the key findings of the GfK consumer climate survey carried out on behalf of the European Commission in January 2003.

The hopes and expectations of German consumers with regard to the economy and consumption continue to be very low-key. Although the downward trend regarding consumers' propensity to buy which set in after the parliamentary election has since slowed, German consumers are still expressing doubts about a sustained change in trend in relation to the economy and labour market, they are concerned about the impending war in Iraq and very reluctant to spend money.

The continued pessimism among German consumers is most evident in their expectations vis-à-vis future economic development. The economic expectations indicator value dropped again by nearly three points in January 2003 compared with December 2002. At minus 29.2, the index value used to measure economic mood is even below the level of the weak economic phase in the second half of 2001 and at the same level of the recession years 1992/1993 and 1996/97.

The reasons for the pessimistic economic outlook are obvious: a particular source of concern is the high unemployment rate, which is still rising. According to the federal government's annual economic report, published recently, 4.2 million people, i.e. one in ten German workers, will be affected by unemployment in 2003. The very slight economic growth of 0.2 per cent in 2002 in Germany and the growth forecast for 2003, which according to the major economic research institutes and to the federal government's annual economic report has been revised downwards, also do little to raise the spirits of consumers.

Even the promising message of the slightly risen commercial climate index of the ifo-Institute does not contradict the basic findings of the current consumer climate survey. The fact that the indicator value is up by 0.1 per cent to 87.4 is solely attributable to an improved mood in the construction and wholesale sectors. Expectations in the key economic segments of trade and retail have decreased again - not surprising, since the Euro is climbing against the dollar, which is hardly likely to buoy the mood in the export-intensive German industry.

Following the relatively steep drop in the income expectations indicator value in November and a slight recovery in December, this indicator was up by another two points in January. As before, however, the positive development compensates only very slightly for the major losses in the indicator value in November last year. At minus 19.4 points, the indicator currently stands at a similarly low level as the turn of the years 1993/1994 and 1996/1997.

There are no signs of a widespread change in trend which will result in positive consumer expectations with regard to their income. It should also be noted that in the GfK January survey, the majority of respondents had not yet received their pay slips for January, which would show any deductions in income. It is probable that the mood regarding income expectations will soon be dampened even further, when the health insurance and pensions increases will show up on pay slips as a visible reminder of consumers' lower disposable income. For this reason, a basic improvement in consumer mood is not anticipated at the moment.

Following the historical low of the indicator measuring consumers' propensity to buy in May and November 2002, this value rose in two successive months in December and January. After an increase of more than 13 points in December and around 10 points in January, the indicator currently stands at minus 31, ending the downward trend in buying propensity. Despite this, in the twenty years that GfK has been conducting the consumer climate survey, the consumption propensity has never been so low as in the past twelve months.

The prospects of a change in trend regarding consumption propensity remain only moderate. The weak economy and labour market combined with consumers' fear of losing their jobs, not to mention the consequences of increased tax and social security contributions on disposable income (the extent of which will only be evident over time) are clear reasons why consumers are currently adopting a 'wait and see' approach.

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

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