Consumers in the mood to spend at the end of the year
Findings of the German GfK consumer climate study for December 2007
Nuremberg, December 20, 2007 – The consumer climate has stabilized as the year draws to a close. This is primarily the result of a marked increase in consumer propensity to buy in December, the month for Christmas shopping. Conversely, economic and income expectations saw another slight decrease. After a revised 4.4 points in December, the GfK consumer climate forecasts a value of 4.5 points for January 2008.Consumers seem intent on abandoning their reluctance to spend of recent months, at least in part. In December, which is traditionally the month for Christmas shopping, the propensity to buy indicator climbed significantly to more than offset the losses of the previous month. However, the strong Euro and its impact on German exports as well as the turmoil in the international financial markets are putting pressure on the German economy. As a result, Germans are taking a more pessimistic view in terms of economic and income expectations.
Economic expectations: slight loss but at steady level
The prospect of a halt in the downward trend in the economic expectations of consumers has improved in December. Compared with last month, this indicator recorded only a minor drop of 0.5 points at the end of the year. However, it has fallen for the seventh time in succession since its all-time high in May this year and with a current value of 23.6 points, economic expectations are still considerably above the long-term average of 0 points.
The fact that the indicator has remained at a high level suggests that consumers are giving a generally positive assessment of the German economy and do not fear a recession. However, the strong Euro and continuing turmoil in the global financial markets have somewhat depressed the outlook for the coming year. This is reflected by the forecasts published recently by the economic research institutes. Nevertheless, they are unanimous in their assumption that the rate of employment, which is a key indicator for the economy, will continue to rise in 2008, although at a slower pace than in 2007.
Income expectations: further decrease
After a minor rise in the previous month, income expectations took another slight downward turn in December. The indicator lost 1.7 points to stand at its current level of -1.7 points, putting it back in the negative range. However, the indicator is almost 15 points up on the same time last year.
Income expectations seem affected by factors including, in particular, concerns about possible inflation. According to the German Office of National Statistics, the November cost of living was 3.1% up on the same time last year. Consumers believe that their purchasing power is under threat and accordingly, are no longer rating their income expectations as positively as before.
Propensity to buy: considerable increase
Towards the end of the year, the propensity to buy indicator recorded a marked improvement, rising by 11.1 point this December to more than offset the previous month’s loss of 8.9 points. Nevertheless, the indicator value is considerably down on last year, although it should be noted that the value of 59.9 points recorded in December 2006 was inflated as a result of the imminent rise in VAT.
Neither the downturn in income expectations, nor the ongoing discussion about price increases impacted negatively on the propensity to buy as the year draws to a close. This has improved the chances of consumers finally abandoning restraint in terms of spending and makes it more likely that the future will see a return to enthusiastic shopping.
Consumer climate: on course for stability
The improved propensity to buy indicator has, in particular, enabled the consumer climate to stabilize further. The climate is also benefiting from a decrease in the propensity to save. After a revised 4.4 points in December, the indicator forecast is 4.5 points for January 2008. This has halted the negative trend recorded since August, at least for the time being. The current trend offers good opportunities for a boost in domestic demand in the coming year. Higher incomes and an increase in the rate of employment could make private consumption a major element of economic development in 2008.
However, this will only happen if politicians do not put any added financial burden on consumers, as this would further weaken their purchasing power. The reduction in contributions for unemployment insurance that has already been resolved will not only impact positively on purchasing power, but will also have a favorable effect on employment. Nevertheless, there are certain risks to the economy in the coming year. In addition to the threat of inflation, which is gathering pace, a recessionary trend in the USA and more extensive upheaval in the international financial markets, which could increasingly impact on Germany, may once again overshadow the consumer climate.
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 January 25, 2008.
Further information: Rolf Bürkl, GfK Marktforschung,
Tel. +49 911 395-3056, rolf.buerkl@gfk.com
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