Slight Upturn in Consumer Sentiment in Germany

According to the findings of a GfK consumer climate survey commissioned by the European Commission there was a slight improvement in consumer sentiment in Germany in April compared with March with even income expectations rising somewhat.

In the first half of April, consumers were obviously hopeful that the German economy was slowly recovering. The reports from the USA about the successful outcome to the war in Iraq presumably played a significant part in this. The situation in Germany, however, shows little sign of the trend reversing, with the labour market in particular giving cause for concern.

The mood among German consumers improved slightly in April compared with the previous month. The indicator moved up seven points to stand at minus 21.9 points, its highest level since October 2002. The slide downwards that started in the autumn of 2002 has come to an end for the time being at least. However, this small positive development should not hide the fact that the indicator remains at a very low level and that the consumer climate is still essentially gloomy.

The positive assessment on the part of consumers is presumably due to the fact that at the time of the survey, the war in Iraq already looked set for a rapid conclusion. This fostered hopes of an upturn in the global economy which consumers believed would in turn benefit Germany.

Income expectations apparently benefited in April from the somewhat more positive economic expectations. The indicator rose by almost six points to its present level of minus 15.5 points, its highest value for six months.

Unfortunately the propensity to buy indicator failed to benefit from the improvement in economic and income expectations in April. The indicator fell by almost six points. However, even at its current level of -32.3, it is still clearly above its record low of -55 points in April last year. Nevertheless, the level is still low and spring has not gone hand in hand with a rise in consumption.

Given the current developments in the labour market where unemployment is still rising, uncertainty reigns among German consumers and they are holding back when it comes to making purchases.

In the light of the movement in the indicators in April, the consumer climate will continue to stabilize and the indicator is forecast to stand at 3.9 points in May. Contrary to original fears, the Iraq war does not appear to have impacted adversely on the consumer mood in Germany, as it became clear at an early stage that the conflict would last only for a short time. Over the next few weeks, it is domestic factors that will again dominate the trend in the consumer climate, and the labour market especially will probably play a major role.

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

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