Germany’s inflation rate fell to the lowest in two years in November after crude oil dropped to $42.68 a barrel from a record $147.27 in July, boosting households’ disposable income. At the same time, the deepening recession and concern about job security is clouding consumers’ outlook for the economy and their own incomes, GfK said.
GfK revised last month’s reading from an originally reported 2.2.
Economic expectations: moderate decline
The downward trend in economic expectations is likely to last at least until the end of the year. The decline is currently running at -2.3 points down from November, signaling a further moderate decline in the indicator, which now stands at -32.4 points.
The outlook for economic growth in the German economy is hardly going to relieve the economic gloom. Reduced production, a steep fall in new car registrations and declining exports will put pressure on economic development in the coming year. As a result, the forecasts for 2009 have been significantly downgraded. In general, the experts are assuming that the German economy will shrink, but they are by no means unanimous about the degree of shrinkage. We shall have to wait and see how well the economic measures taken up to now work.
Income expectations: the mood is gloomy
Over the past four months, consumers seem to have remained comparatively optimistic despite the recession, however, this has changed towards the end of the year and income expectations dropped 8.5 points this month to their current level of just -15.4 points. The decline in the economy is leading growing numbers of those in employment to fear for their jobs and consequently, to be more pessimistic in their assessment of their own financial position. Anxieties concerning loss of income are currently taking precedence over factors which tend to increase purchasing power, such as lower petrol and heating oil prices.
In light of the weaker job market, there is a fear that actual wages and salaries are unlikely to rise much in the coming year. According to a recent purchasing power survey carried out by GfK GeoMarketing, net per capita income will increase by just a nominal 1.1% in 2009. Assuming the German Central Bank forecast is correct, which is based on inflation running at 0.8% in 2009, any increase in private means will be absorbed virtually immediately. In real terms, purchasing power is likely to rise only moderately, and much depends on the further developments in the job market, as well as relating to the financial crisis. Whether individuals are likely to have more disposable income depends mainly on whether they will be able to benefit from net growth in wages and salaries, or whether they will be affected by short time work or even lose their jobs.
Propensity to buy: slightly up
Unlike income expectations, the propensity to buy remained stable at the end of the year. Up 0.4 points, it even rose slightly. The indicator currently stands at -6.3 points, which is still below its long term average of 0 points.
The marked decline in inflationary pressure should be responsible for the current stability in propensity to buy. Further drops in petrol and heating oil prices are also benefiting the household budget and putting consumers into a better mood. This is reflected by the current seasonal Christmas business, and the positive news from retailers is being confirmed by the stable consumer climate.