German inflation fell in October and the price of oil dropped to just over $50 a barrel from the July peak of $147, boosting households’ disposable income. On the other hand, Germany's worst recession in 12 years is continuing to affect consumers’ outlook for the economy, according to the GfK report.
“Many Germans don’t yet believe they will be significantly affected by the downturn,” GfK said in the statement. Still, a further improvement would “very much depend on how deep the recession is and how the labor market will be affected.”
Household consumption rose 0.3 percent in the third quarter from the second, following a 0.6 percent drop in Q2, according to the detailed GDP data released by the Federal Statistics Office this morning.
Reports that the Federal Republic of Germany is also being hit by the global financial and economic crisis and is now also in recession have caused German expectations for the economy to slide dramatically, GfK said.
The expectation indicator hit a new record low in November. In contrast, falling prices for heating oil and gasoline have somewhat eased the pessimism when it comes to income expectations and the propensity to buy. The recent collective bargaining wage agreements in the metal and electrical industry are also likely to have contributed to the fact that income sentiment has risen for the fourth time in a row.
Sharply falling energy prices also meant that the income expectations sub component continued to rise - for the fourth time in a row - and the indicator now stands at -6.9 points, year-on-year however it is still down almost 7 points.
The propensity to buy indicator also rose, more than making-up for the sharp drop in October. The rise of 11.5 points this month is almost twice as high as the drop of 5.4 points recorded in October. At present, however, the indicator still stands at -6.7 points, way below its long-term average of 0 points.
Thus the propensity to consume is still withstanding the general recessionary trend, and consumers appear to assume that they will not be particularly affected by the downturn and feel there is no special need to further restrict their willingness to buy, just at the moment at any rate.