German consumers defying debt crisis

FRANKFURT - Agence France-Presse

Market research firm Gfk finds that consumer confidence in Germany is up slightly in July from June to 5.8 points. EPA photo

German consumer confidence is holding up despite concerns that the German economy, the biggest in Europe, will be hit by repercussions from the debt crisis, a poll found yesterday. Market research company GfK said its household confidence index was forecast to edge slightly higher to 5.8 points in July from 5.7 points for June, a statement said.

“The consumer climate is defying the intensification of the crisis, but sentiment is mixed,” GfK said.

“While income expectations have risen sharply and the propensity to spend has edged higher,
economic expectations have seen a sharp downturn,” the institute said. “The turbulence in the euro area... has dealt a heavy blow to consumers’ optimism. Fears are on the rise” that Germany will find itself increasingly sucked into the maelstrom of the debt crisis, it said.

The headline consumer confidence reading is based on responses from around 2,000 households on their expectations about pay and the economy as a whole in the coming months, as well as their willingness to spend money. Last week, the key Ifo business climate index fell to its lowest level in more than two years as companies become increasingly gloomy about the outlook for the German economy.

Analysts said they had been expecting the GfK barometer to ease this month. “Although all sentiment indicators, such as Ifo and the ZEW investor confidence survey, have signalled some panic effects due to worries related to the eurozone debt crisis, consumer confidence remains relatively resilient,” said Newedge Strategy analyst Annalisa Piazza.

With German inflation slowing and the labour markets very strong, “we rule out that consumer confidence will collapse near term,” she said. Berenberg Bank economist Christian Schulz agreed.
“Sharply lower fuel prices and higher wage deals are boosting disposable income, income expectations and the propensity to purchase,” he said. And continued labour market strength “is adding to the comfort of households.

“The euro crisis... will lead to a new economic soft patch over the summer. However, domestic private consumption is likely to stabilise growth and prevent a major downturn,” the economist concluded.