Germany: Consumer confidence halts rapid growth
December 21, 2010
Consumer confidence ended six months of unbroken increases. The forward-looking consumer sentiment indicator, published by the GfK market research group, slipped to 5.4 points for January, down from the 5.5 points observed in December and disappointing market expectations that the index would rise to 5.7 points. Despite the slight drop, the confidence indicator suggests that the strong recovery will continue in 2011, private consumption joining exports as a key growth driver. The GfK's overall consumer confidence indicator refers to January but its three sub-indices (economic expectations, income expectations and propensity to buy) refer to December. According to the survey, all three sub-indices dropped over the previous month. The economic expectations index edged down to 58.8 points in December from 65.8 points in November, ending six months of strong growth. While consumers believe the recovery is on track, they still have concerns about the sustainability of the strong momentum. In contrast, positive developments in the labour market are expected to continue over the coming year. According to the GfK, the number of unemployed is expected to fall below 3 million in the year to come and the shorter-hours work regime (Kurzarbeit) implemented during the economic downturn will be rolled back. In line with economic expectations, income prospects deteriorated. The income expectations indicator decreased 4.6 points to 40.3 points in December. However, the reading remains 25 points higher than in the same month last year. Furthermore, the propensity to buy slipped by 5.5 points over the previous month to reach 33.8 points, partly rolling back a 16.8 point increase observed in November. The drop in buying intentions reflected lower income prospects and a slight increase in price expectations as a result of higher energy prices.
Author: Ricardo Aceves, Senior Economist