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Tuesday, May 27, 2008

GFK Consumer Climate Survey May 2008

German consumer confidence fell more than economists forecast in May, as inflation sapped purchasing power. GfK AG's foward looking index for June, based on a survey of about 2,000 people, declined to 4.9 from a revised 5.6 in May.

Rising inflation in May of this year has clouded the mood among consumers. The economic outlook indicator, income expectations and the propensity to buy all suffered considerable losses. As a result, the consumer climate indicator for June is forecasting a value of 4.9 points after a revised 5.6 points in May.

GFK emphasised that with oil and petrol prices constantly hitting new record highs and further looming price increases in areas like food, German consumers are becoming increasingly preoccupied by the constraints on their purchasing power. This has led to income expectations being assessed less positively than in April. Price increase expectations also meant that the propensity to buy fell sharply in May. Concerns about price stability and uncertainty resulting from the crisis on the financial markets and the flagging US economy are currently fueling economic fear amongst German consumers. This has resulted in the economic downturn becoming somewhat more pronounced than at the beginning of the year.

Turning to the sub-components, these are all sharply down this month.

Economic expectations

The significant gains in economic expectations last month could not be maintained in May. The indicator dropped back by almost 10 points to stand at 13.4 points.

GFK suggest that despite the fact the German economy did surprisingly well in the first quarter of the year, German consumers are looking towrads further economic development much more cautiously. It is becoming increasingly apparent that the crisis on the financial market is far from over and the current developments of the US economy while not being disastrous are also far from encouraging in the short term. Evidently, Germans are assuming that the strong GDP growth recorded in the first quarter of 2008 is not likely to continue and as a result, an economic slowdown is being anticipated. The continuing strength of the euro and the high rates of inflation are only intensifying this feeling.

In this light, economically positive developments, such as the good conditions on the job market, are currently taking more of a back seat.

Income expectations

After three months of successive growth, income expectations incurred marked losses in May. The indicator fell by 14.8 points to stand at -4.3 points. As a consequence, the gains made over the previous three months were almost completely negated.

In addition to a general concern about household purchasing power, the particularly high energy prices seem to be a major factor behind the current pessimism concerning future personal finances. Beyond this, discussions of price increases are currently drowning out the positive effects of the wage agreements concluded at the beginning of the year. Positive developments in the job market and the knock-on positive effects for income development are presently being eclipsed by strong inflation expectations.

Propensity to buy

In the wake of falling income and economic expectations, the propensity to buy also suffered major losses in May. The indicator dropped back 15.7 points, to now stand at -20.4 points.

The drop in buying propensity is mainly attributable to the increased fears of inflation. In light of soaring energy and food prices and the fear of further price hikes, any funds allotted to cover these increases can obviously not be used for other purchases.

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