German consumer sentiment is set to deteriorate next month as income expectations and the willingness to buy durables deteriorated on high fuel prices, a survey by the market research group GfK showed Friday.
The forward-looking consumer confidence index dropped to 5.6 for May from a revised value of 5.8 in April. Economists had expected the index to remain stable in May at April's originally reported reading of 5.9.
Consumer spending was an important boost for the overall economic development this year. Consumer climate is likely to develop in an overall stable manner in the months ahead, provided the employment market continues to develop as positively as estimated, GfK said.
Spending is a major component of gross domestic product, against the backdrop of potential weakness in exports. The research group estimates 1 percent increase in private consumption.
While the overall economic outlook was viewed more optimistically in April, the high level of income expectations dropped slightly, and the willingness to buy declined significantly.
The economic expectations index increased by 1.3 points to 8.5 in April. Consumers viewed the economy as being back on track for recovery. Calm was temporarily restored to the financial markets after the second rescue package for Greece.
Nonetheless, the recent unrest on the stock markets caused by the French elections and the collapse of the Dutch Government are not taken into account in this survey. Concerns over Spain could also dampen the outlook in coming weeks.
Meanwhile, income expectations dropped in April over concerns about rising fuel prices. The corresponding indicator dipped 1.3 to 33 points. Consumers assessed their purchasing power as being compromised, as an ever greater proportion of their income is spent on energy.
According to the recent report published by research institutes, inflation is unlikely to drop below the 2 percent mark as predicted at the end of last year, but will be 2.3 percent. This suggest that the increase in real income which is expected in the upcoming wage negotiations will be lower.
After a slight decrease in March, the willingness to buy index shed 11 points to reach 27.6 points in April. Again higher price expectations overshadowed the continuous positive effects of the employment market development. Increased employment remains a major boost for purchasing sentiment.
Further, consumers' tendency to save increased in April due to the current concerns on financial markets.
by RTT Staff Writer
For comments and feedback: firstname.lastname@example.org