Germany: Consumer confidence getting stronger on ECB measures

Wednesday, 27. April 2016 11:55

"German consumer climate is on the rise again" is the title of the latest Consumer Climate Study, performed by the GfK and published on Wednesday. The report explicitly noted the European Central Bank measures as the main propellant for the higher consumer confidence in Germany that will convey in increased spending and consumption in the coming months.

"German consumer optimism improved distinctly in April," said the monthly report with overall index in April being 9.4 points and forecast for May rising to 9.7 points. Growth in consumer expectations for economy and income as well as propensity to buy have grown since March. Private consumption is seen to rise by around 2%, and domestic demand will remain the essential pillar of the German economy.

Consumers are "clearly assuming" that the economy in their country will expand in the coming months, albeit in moderate pace. The Economic expectation index jumped 5.8 points to 6.3. Economic sentiment looks to have stabilised above long-term average value of 0 points. Translated into GDP figures, the economy will grow 1.6% in 2016, while the forecast says it will expand by 1.7% in 2017. Geopolitical uncertainty and economic weakness are seen as the main obstacles for a faster growth.

Income expectation index jumped 7 points to 57.5 points in April, topped only by 58.5 points from July 2015. Revived economic outlook, consistently high demand for labor, and the last round of wage negotiations is seen as a way to "a welcome growth in income for a considerable portion of workers," said the GfK report. Adding to picture were low energy prices and overall moderate inflation. Pensioners should expect a significant increase in their income with statutory hikes of 4.25 in the western and 5.95 in the eastern part of Germany, reminded GfK.

The Propensity to buy index increased by 5.4 points to 55.4 points, the highest level since July 2015. "Propensity to buy can clearly benefit from the decision of the European Central Bank (ECB) in March to re-open the monetary floodgates," explained GfK. Saving money is not as attractive, as "there are increasing discussions about whether negative interest rates will also be applied to private accounts in the future."

"The recent decisions of the ECB to lower the key interest rate to 0 percent, to extend the bond buying program again, and to raise the penalty interest rate for banks that want to deposit money with the ECB caused propensity to save among Germans to fall to a new historic low in April."

In Frankfurt, where the ECB is situated along with the leading stock exchange, the DAX index was 0.21% higher at 10,281 points by 11:52 a.m. CET. Top gainers were across the industries: Adidas, Volkswagen, BASF, Continental, Lufthansa. Main decliners: Muenchen Ruueckvers, Bayer, Allianz, E.ON, RWE.

The euro rose 0.02% versus the U.K. pound and added 0.07% against the U.S. dollar. It inched down 0.01% compared to the Swiss franc at 11:55 a.m. CET.

Following this strong indication that – given enough time – the ECB measures have resulted in stronger consumer confidence in Germany, and in France, investors will be now looking at the United States Federal Reserve Bank. The Federal Open Market Committee is widely expected not to raise its key interest rates at the regular meeting in Washington.

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