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Debt crisis weighs on consumer sentiment

Following the positive development in the previous month, consumer sentiment in Germany has dampened in July, with decreases in both economic and income expectations. There has been only a marginal drop in willingness to buy. The overall indicator is forecasting a value of 5.4 points for August, following a revised value of 5.5 points in July.
The ongoing discussions about the best way to resolve Greece?s debt crisis and the associated potential dangers for the single European currency are unsettling German consumers, and economic and income expectations have weakened accordingly in July. Willingness to buy has also declined, albeit very moderately. It therefore appears that the events surrounding the debt crisis are overshadowing the positive general conditions in Germany at present.
Economic expectations: moderate drop
Having moderately increased in the previous month, economic expectations are currently decreasing again. At 5.7 points, the drop is somewhat greater than the increase of 4.2 points in June. At present, the indicator stands at 44.6 points and is therefore almost 8 points above the corresponding value for the prior year.
The extensive discussions aimed at finding a solution to Greece?s debt problems and the fear that other euro countries could find themselves in a similar situation have dampened the considerable economic optimism of German consumers this summer. However, Germans still expect that the economy will continue to record growth, even if this is not quite as strong as previously. Consumers are therefore largely confirming the opinions of experts. The Ifo business climate index has also dropped this month. Companies are no longer quite as satisfied with their current business situation, although their assessments are on a par with the level in spring this year. Even though business expectations are currently on a downward trend, the German economy is still enjoying a summer high. For example, economic growth of more than 3% is expected for this year and in 2012 the gross national product is expected to rise by around 2% according to forecasts available to date.
Income expectations: increase recorded in the previous month partially cancelled out
Following the very strong rise in the previous month, income expectations have declined once again in July. The indicator has dropped by 10 points and currently stands at 34.6.
The solution to Greece?s debt problem also holds certain dangers for the stability of the euro and the entire eurozone. Consumers are therefore anxious that they may suffer an additional negative financial impact in the case of Greece going bankrupt or if the EU is obliged to make further bailout payments. In addition, there is the threat of a further increase in energy prices, which would also have a negative impact on the spending power of private households. As a result, Germans? income optimism is currently somewhat subdued.
Willingness to buy: marginal decline
Unlike economic and income expectations, there has only been a modest decline in willingness to buy in July: the indicator has dropped by one point and now stands at 34.1. This represents an increase of just over 6 points compared with the same period in the prior year.
Pleasing development on the jobs market in particular is ensuring that consumers are still in the mood to buy. Falling unemployment figures are allaying employees? fears of losing their jobs and therefore also increasing their planning security, which is particularly important for larger purchases. The signs are therefore still pointing to a good consumer economy in Germany.
Consumer climate: slight decline
The overall indicator is forecasting a value of 5.4 points for August, following a revised value of 5.5 points in July. The debt crisis and lack of discernible strategy for its resolution up to now has slightly dampened consumer sentiment in Germany. Despite the fact that general conditions for domestic demand in Germany remain very positive, they are not fully compensating for this uncertainty.
The outlook for private consumption this year remains favorable. According to information provided by the Federal Statistical Office, real private consumer expenditure rose by 1.9% in the first quarter of 2011 compared with the prior year, not least because real salaries grew by 2% in the first three months of this year.
Domestic demand will therefore fulfill its role as a major driver of economic development and an important growth vehicle this year, despite the external risks.
The survey
These findings are extracts from the ?GfK Consumer Climate MAXX survey?, which is based on around 2,000 consumer interviews conducted each month on behalf of the EU Commission. The report contains charts, forecasts and a detailed commentary regarding the indicators. In addition, the report includes information on proposed consumer spending in 20 different areas of the consumer goods and services markets. The GfK Consumer Climate survey has been conducted since 1980.
The next publication date will be August 25, 2011.
Further information: Rolf Bürkl, tel. +49 911 395-3056, rolf.buerkl@gfk.com
You can find information on the development of the indicators in the first quarter in nine further European countries in GfK Consumer Climate Europe at http://www.gfk.com/group/press_information/press_releases/007817/index.de.html

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