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German GfK Consumer Sentiment Set To Hit 7.5-year High

GermanConsumerconfidence 062514

German consumer confidence is set to improve to the highest since 2006 in July, as economic expectations and willingness to spend strengthened after the European Central Bank lowered its key rate early this month.

The forward-looking consumer sentiment index rose to 8.9 in July from a revised 8.6 points in June, survey data from market research group GfK showed Wednesday.

This was the highest score since December 2006. Economists had forecast the indicator to rise to 8.6 points from June's original estimate of 8.5.

The mood of consumers was underpinned by strong economic expectations and willingness to buy sub-indicators. Meanwhile, income expectations weakened slightly in June. Consumer climate was also boosted by the slump in propensity to save after the interest rate reduction.

The economic expectations index rose 7.7 points to 46.2 in June, the highest value since June 2011, when it reached 50.3 points.

Following a robust start to 2014 for the German economy, the current focus of consumers in view of economic developments is predominantly on general domestic conditions such as labor market situation, propensity to invest and inflation.

The GfK said the GDP is expected to grow by around 2 percent this year as widely anticipated by economic experts. The survey suggests that private consumption will rise 1.5 percent in 2014.

Nonetheless, the developments of international crises, especially in Iraq and Ukraine, continues to be an unpredictable risk factor for the economy. According to the Ifo survey, sentiment among German companies deteriorated to a six-month low in June.

Consumers' income expectations fell by 0.6 points to 47.2 in June. It was only just over five points below the highest value since reunification that was reached in April this year.

Collective wage agreements amid falling inflation support income expectations. The continued positive labor market situation also offers scope for salary and wage increases among German employees.

The willingness-to-buy index gained 3.7 points to reach 53.2 in June. This marks growth of almost 17 points on the same period of the previous year. The propensity to consume measure sustained its extremely stable condition.

As in the previous months, the good framework conditions in Germany, including employment, income development and inflation, determine the consumer sentiment on an ongoing basis.

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