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Friday, May 2, 2008

German GFK Consumer Confidence Index May 2008

Well this really is quite a surprising result, largely becuase it seems to run so contrary to everything else we are seeing at the moment. German consumer confidence unexpectedly increased to a seven-month high as rising incomes encouraged spending.

GfK AG's index for May, based on a survey of about 2,000 people, increased to 5.9 from 4.8 in April, the Nuremberg-based market-research company said in a statement today. Economists predicted the gauge would fall to 4.5, according to the median of 28 estimates in a Bloomberg News survey.

The mood among German consumers markedly improved in April. The economic outlook indicator, income expectations and the propensity to buy all climbed significantly. As a result, the consumer climate indicator for May is forecasting a value of 5.9 points after a revised 4.8 points in April.
GFK Report

Rising wages and the lowest unemployment in 16 years are cushioning the impact on consumers of faster inflation and slowing economic growth. While industrial production unexpectedly rose in February and manufacturing growth accelerated last month, business confidence fell more than economists forecast this month under the impact of the global credit squeeze on export markets.

The euro pared gains after the report, having risen as high as $1.5682 from $1.5630 on April 26.

The sub-index measuring income expectations jumped to 10.5 from 1.5 and the gauge of consumers' propensity to spend rose to minus 4.7 from minus 10.2. The measure of economic expectations increased to 23.3 from 15.

Economic expectations: marked growth

After the minimal growth recorded last month, the economic expectations of German consumers are now increasing dramatically, with the indicator rising 8.3 points to stand at 23.3 points.

Consequently, a further fall in the economic mood is not on the cards, at least for the time being. Consumers assume that the German economy is not in recession, but is likely to show signs of slowing down. They believe that the impact of the US subprime crisis and its associated repercussions will not leave German banks totally unscathed. Up to now, however, the banks seem to be very resilient and able to counter these dangers. The many positive reports on the job market testify to the generally good state in which the German economy finds itself.

Income expectations: remaining optimistic

Income expectations in April rose again for the third consecutive time. Up by 9 points, the current increase was even greater than the two previous months together. However, compared with the same period last year, the figure was down by a good 19 points.

Above all, the good wage agreements in the public sector are rightly giving public sector employees the hope that, unlike in previous years, they will finally be given greater purchasing power once again. Evidently, these expectations have been able to allay any fears of inflation, provoked by rising food and energy prices. On top of this, the positive trend on the job market continued to reduce fears of unemployment, which in turn, also sustained income expectations.

Propensity to buy: still on course for recovery

Buying propensity also continued to recover unabated in April. The indicator rose markedly for the second time consecutively, up by 5.5 points this month. This represents propensity to buy of -4.7 points, which is still below its long-term average of 0 points.

The more optimistic income expectations, in particular, seem to have encouraged growth in the propensity to buy. However, the fact that it remains at a level which is below average also reflects the remaining element of uncertainty and shows that Germans will think twice before abandoning consumer reticence.

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