Sentiment among German households is set to improve slightly in August with high incomes boosting consumers' willingness to spend on big-ticket items, despite the growing tensions surrounding the prospects of Eurozone's economy.
Market research group GfK said its consumer confidence index for August rose to 5.9 from 5.8 in July. Economists had expected the index to hold steady at the July level.
Willingness to buy improved for a third consecutive month in July, despite worsening conditions in rest of Eurozone. The indicator rose by 3.1 points to 35.8 points and was approximately at the same level as in last year.
Income expectations continued to remain at a "distinctly high level" though the indicator fell by 3.8 points in July. Further strengthening the purchasing power of income, inflation dropped below the psychologically important level of 2 percent recently, GfK said.
The stable employment situation with falling unemployment and the resultant income increases are improving planning security, the GfK said. Further, the lack of trust in financial markets and historically low interest rates mean that saving money does not appeal, it added.
GfK retained its forecast of a 1 percent increase in private consumption this year. Private consumption accounts for almost 60 percent of Germany's gross national product.
However, GfK said the ongoing banking and debt crisis in Europe is dampening Germans' economic optimism.
"Consumers are increasingly fearful that the German economy will now also be drawn into the crisis," the research group said.
Germans' economic expectations dropped quite significantly for the second time in a row. The corresponding indicator fell by 8.6 points from a month earlier to -5.6 in July.
The ongoing crisis has pushed the major European states of Italy, Spain and the U.K. back in to recession, which are important trading partners for Germany. Their economic weakness is most likely to have a negative impact on export developments, according to GfK.
Ifo Institute reported Wednesday that the business confidence fell for a third consecutive month in June, reaching the lowest level in more than two years. Most of Germany's recent indicators pointed to the increasing risk to the economy due to flare-up of the crisis.
The latest purchasing managers' survey by Markit Economics revealed Tuesday that the private sector contracted in July, marking the weakest performance since June 2009. Both services and manufacturing activity declined during the month.
Moody's Investors Service on Monday warned that Germany may lose its Aaa credit rating due to heightened uncertainty regarding the prospects of the debt crisis and increasing likelihood of a Greek exit. The agency downgraded the rating outlook to 'negative' from 'stable'.
by RTT Staff Writer
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