As forecast by Gf
K, the weak phase in the consumer climate drew to a close during the last month of the first quarter of the year. The trigger for this was the revival in the consumer propensity to buy which, coupled with the improvement in the outlook for income, stabilized economic expectations at a very high level. As a result, the consumer climate indicator is forecasting 4.4 points for April this year, which is up on the revised March forecast of 4.3.
As anticipated, by the end of the first quarter of 2007, the decline in the consumer climate drew to an end. A significant contributory factor to this was the consumer propensity to buy, which improved in March and is now slowly connecting with the better income prospects on the horizon. In the absence of any great price shock caused by the rise in the rate of VAT at
the beginning of the year, the uncertainty relating to the potential risk of inflation appears to have evaporated in the mind of the consumer. Sustained optimism in the economic outlook is also having a positive effect both on propensity to buy, as well as on income expectations.
Economic outlook: remains high
German consumer confidence in a tangible and sustained upswing in the economy continues to be high this March. With a drop of just 0.2 point compared with the previous month, economic expectations declined only minimally. At the present level of 53.1 points, apart from February 2007, the indicator has yet to regain its August 2000 level (58.9 points).
The current wave of consumer optimism concerning the economy is attributable in the main to the positive news coming from the German job market. Rising confidence is reflected in the fact that current growth forecasts for this year are being upgraded by the experts.
Income expectations: on an economic high
Income expectations were also swept along on the wave of economic euphoria this March to record an increase of 15.9 points, representing the third rise in succession. The indicator was up 13 points on the previous month of February to register a level last reached five and a half years ago in October 2001, when it stood at 26.1 points.
The rosier outlook for jobs also led consumers to hope that the collective bargaining wages and salary rises would be rather higher in some industries this year than in past years. This would ease the extra burden on households since the beginning of the year generated by such factors as the increased rate of VAT, the abolition of the commuter allowance and the savers’ tax break and make the situation more manageable for those in employment.
Propensity to buy: decline comes to an end
After three months of steep decline, the propensity to buy recovered slightly in March this year, with the indicator recording a rise of 3.7 points to stand at -12.3 points. Consumer propensity is evidently reflecting the overall positive sentiment in the population. Contrary to original expectations, the VAT increase has left the inflation rate largely unaffected as yet and the prospect of a gradual evaporation of consumer uncertainty in the face of the current economic optimism is gaining ground. This means that the weak phase is likely to be consigned to history during the course of the second quarter of the year and the indicator will reconnect with the general positive economic climate.
Consumer climate: decline halted
The decline in the consumer climate is forecast to end this April. The indicator is forecasting 4.4 points for April, which is up on its revised level of 4.3 for March. In particular, the stable propensity to buy is ensuring an end to the weak phase in the economic climate. A positive factor of at least four points still signals that private consumption is making a sound contribution to growth. The GfK forecast of half a percent of real growth in consumption this year remains valid.
Source: GfK
Picture: SXC
