Findings of the GfK Consumer Climate study for August 2012
August saw a weakening of the consumer sentiment in Germany. While the indices for income expectations and willingness to buy only suffered a moderate fall, economic expectations were markedly more pessimistic.
Due to a downward trend in the inclination to save the overall indicator maintained a constant level with a forecast of 5.9 for September, following a value of 5.9 points in August.
German consumers fears of a noticeable weakening of the economy continued to rise in August, a fact borne out by the third marked decline in economic expectations. This development has also had an impact on income expectations and consumption trends, both of which, although remaining at a high level, suffered a moderate fall. In spite of the negative effects, the overall consumer climate indicator remains stable, since the inclination to save is also currently regressive, as a result of which consumers have more disposable income to spend.
Economic expectations: a marked drop
For the third time in succession, the economic expectations of German consumers have recorded a marked drop. In August, the index fell by 13.3 points to register -18.9 points. In the prior month, the fall was 8.6 points. In a year-on-year comparison, the index is currently running at a 32.3 point loss.
To growing degree, German consumers fear that the German economy will also fall victim to the recession in several eurozone countries. Although up to now, the German economy has proved to be resilient enough, the pace of economic growth was somewhat slower in the second quarter. According to data published by the German Statistical Office, compared with the prior period, Gross Domestic Product only rose by 0.3 percent, after the 0.5 percent growth registered in the first quarter of the year.
The economic weakness of a series of countries across Europe has resulted in a significant decline in German exports to Europe. In particular, the negative developments in Spain, Italy and Greece have made their mark on exports to these countries. This is also reflected by the ifo business climate index, which has shown a decline in August for the 4th month in a row.
Income expectations: a moderate fall
The significant decline in economic expectations is the likely reason underlying the fall in consumer income expectations in August. The drop of 4.7 points is already the second in succession, however, the decline is moderate. At its current level of 31.6 points, in general, the level of the indicator remains good, added to which it is still 4 points higher than the corresponding value in the same period of the prior year.
The good level of the index shows that income expectation are still resilient to the macro-economic risks inherent in the euro crisis, although it has to be said that the initial signs of an imminent fall are there. The positive outcome of wage bargaining agreements in comparison with previous years and in association with a very stable labor market are lending further considerable support to income expectations. Nevertheless, another marked rise in fuel prices recently may well serve to stoke up inflation. If this happens, the subsequent weakening of purchasing power will impact on the income expectations index.
Willingness to buy: a marginal decline
Conversely, there has been little movement in consumer willingness to buy. After three moderate rises in a row the indicator dropped by 2.7 points in August. At its current level of 33.1 points, the index remains at a high level, although it is slightly below its level at the same time last year.
In spite of growing international upheavals, German consumers have so far maintained their willingness to buy at a high level. A stable job market and the comparatively high wage agreements compared to previous years are proving to be positive factors encouraging major purchases. Added to this is the fact that as a result of the present financial and euro crises, there are still considerable reservations concerning investing money with the banks. There is also great anxiety about the potential loss of stability of the currency. Beyond this, the interest rates currently earned by any money invested is so low, that not even inflation can compensate, a fact confirmed by the decided fall in consumer inclinations to save.
Consumer climate: no change
Following a value of 5.9 in August, the overall indicator is again registering a value of 5.9 points for September 2012. With this, the consumer climate remains stable at a high level, although this is only because of the distinct drop in consumer inclinations to save.
Private consumption continues to be an important prop for Germany’s economy. The growth in Gross Domestic Product (GDP) recorded in the second quarter of the year testifies to this. According to data from the German Statistical office, private consumption rose by 0.4 percent compared with the previous quarter to make a disproportionately high contribution to the 0.3 percent rise in GDP.
In a year-on-year comparison, private consumption rose by around 1.2 percent in the first six months of 2012. Consequently, the current rate of growth falls within the scope of the GfK forecast for the year, which indicates that private consumption is likely to rise by around 1 percent in real terms this year.
You can find information on the development of the indicators in the second quarter of 2012 in 12 select European countries and the USA in GfK Consumer Climate Europe and USA at http://www.gfk.com/consumer_climate_europe/index.en.html
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Nuremberg, Germany - 28 August 2012