No Upturn in German Consumer Confidence

According to a GfK consumer climate survey in Germany commissioned by the European Commission, carried in March, a reversal in the consumer confidence trend is likely to take a while as consumers continue to have their doubts concerning an economic upturn.

German consumers continue to be sceptical about economic and political developments. They fear that further reforms in taxation and social contributions will leave them with even less money in their pockets. Any hopes of a swift economic upturn have also remained muted. The continuing high level of unemployment and the war in Iraq, which started after the end of the March survey period and has not yet made its mark, may yet dampen spirits still further in the coming weeks.

German consumers fear that a year of recession is on the doorstep. Economic expectations dropped slightly once again in March, down 2.7 points on the previous month. To a large extent, this counterbalanced February's points gain and overall, at minus 28 points, economic expectations continue to remain at the level of the 1992/1993 years of recession.

In addition to a sustained high level of unemployment, which once again threatened to rise in March, and an outlook for growth which is constantly being revised downwards, the debate surrounding the war in Iraq continues to impact on the situation. Even so, there is still the possibility that current media reports on the Iraq crisis may depress economic expectations still further. However, any fall should be moderate, as the indicator level is already very low.

The weak economy is not entirely without effect on consumer income expectations. The indicator dropped a further 0.5 points in March to continue the downward trend. With a current value of minus 22 points, the indicator has not quite yet fallen to its level in 1993, a recessionary year.

The multiple problems which have arisen since the beginning of the year, the fear of unemployment and associated loss of income are likely to be the major grounds for a rather pessimistic assessment of the financial situation in the households surveyed. The continuing debate concerning more extensive reforms in the taxation and social security system have also caused a degree of uncertainty. Evidently, many people fear that reforms will mean an additional financial burden. And finally, the effects of the current price increases in petrol and heating oil should not be underestimated, as these place an additional burden on household budgets.

In contrast with the depressing developments in economic and income expectations, the propensity to make purchases has grown again for the fourth time in a row. The indicator rose four points in March and at minus 26.6, is already almost 30 points above its all time low of November 2002 (-55.4 points). This means that the propensity to buy is rising steadily. Evidently, the special offers and discounts offered by retailers mean that consumers are increasingly tending towards the belief that now would be a good time to make major purchases.

However, it is much to early for any mention of euphoria. With income and economic expectations continuing to fall, consumption is hardly likely to stage a major recovery. Above all, positive signals from the labour market might help to create a more lasting improvement in the consumer mood, since this would provide consumers with more planning certainty. In addition, further burdens caused by the Iraq war cannot be excluded and if the war takes longer than originally planned, the consumer mood will surely suffer.

These are the findings of the 'GfK-Wirtschaftsdienst Konsum- und Sparklima' (GfK financial services, consumer and savings climate survey), published by GfK Marktforschung. The results are based on monthly consumer interviews carried out on behalf of the EU Commission. In the first half of March 2003, 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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