A recent survey of German consumers carried out on behalf of the European Union (EU) Commission has revealed that, for the third consecutive month, the indicator that expresses consumers' views on the economic outlook has lost ground.
According to the survey, 'GfK-Wirtschaftsdienst Konsum-und Sparklima', ('GfK financial services, consumer and savings climate'), published by GfK Marktforschung, and based on some 2,000 monthly consumer interviews carried out on behalf of the EU Commission, consumers are generally pessimistic about the general economic outlook.
Following a 0.5 point drop in November, the indicator lost a further 1.3 points and now stands at -18.3. This means that the indicator is almost 17 points down on the figure at the end of 2003. In fact, all economic research organisations and associations have revised their forecasts for economic growth in Germany in 2005 downward. By contrast, the Centre of European Economic Research (ZEW) reported that financial analysts are viewing economic growth in a slightly more positive light than in November.
Income expectations up
Despite this, consumer expectations with regard to their own income stabilised just above the previous month's level. Following a significant rise in November, the upward trend in the propensity to purchase major items has continued. Accordingly, the overall consumer climate indicator has also climbed.
The indicator for income expectations, which maintained a pattern throughout 2004 of an increase in one month being followed by a decrease in the next, has finally stabilised just above the previous month's level. Following a 2.3 point rise in December 2004, the indicator for January 2005 stands at -13.5 (five points below the comparable figure in 2004).
The number of larger purchases made by consumers is encouraging. Following a period of virtually no change during the past few months, when the indicator moved between -27 points and -28 points, the indicator recovered 2.1 points in December 2004, to stand at -22.3. The upward trend is also reflected by the fact that the corresponding figure for in 2004 has been exceeded by almost ten points.
But, according to GfK, a marked improvement in the employment market is needed to achieve a significant breakthrough. Anxiety about job losses remains the major obstacle to a sustained trend reversal in consumer mood and, in particular, to people's willingness to spend.