The consumer climate in Germany weakened slightly in July. Also as a result of Brexit in the United Kingdom, the Consumer Climate overall indicator forecasts 10.0 points for August, down from 10.1 points in July. Economic and income expectations suffered losses, while propensity to buy increased slightly again.
German consumers, too, have evidently been affected by the Brits' decision to leave the EU. This is signaled by the decline of both economic and income expectations. In contrast, propensity to buy was able to exceed its already very high level.
Economic outlook somewhat dampened by the referendum
For the first time after three successive increases, the economic expectations of German consumers have suffered a setback. The indicator lost 8.6 points in July and is now at 9.4 points, noticeably weakening the positive trend seen over the last few months.
Consumers do not seem to believe that the German economy can continue to grow in the coming months at quite such a significant pace as in previous months. They put this down to the Brits' decision to leave the EU. This is also shown by the results of an additional survey carried out this month in addition to the consumer climate study. GfK asked citizens how they thought Brexit would affect the economy and labor market in Germany. Over half of those surveyed (51 percent) said they believed it would have negative effects on the German economy, while around 40 percent dismissed such concerns.
They were somewhat less worried about jobs in Germany in general, however. All the same, around 40 percent of consumers believe the referendum in the United Kingdom will also affect jobs in Germany. However, in contrast to the consequences for the economy, optimists are in the majority when it comes to the labor market, with 52 percent not fearing any disadvantages for employment in general.
In addition to the topic of Brexit, the economic outlook for the coming months will also be determined by how the tenser security situation/increased terror threat affects the mood of consumers.
Income expectations: Constant ups and downs
The constant fluctuations in income expectations, which began in November 2015, also continued into July. However, in contrast to previous months, this time the decline was somewhat more pronounced at minus 9.9 points, compared with June's increase of plus 7.8 points. At 49.7 points, the indicator stands just under the 50-point mark.
In the face of the weaker economic outlook, the income indicator also suffered losses. The Germans still remain very optimistic about how their income will develop, however. And rightly so – against the background of the very stable job situation and absence of inflation, employees have considerable purchasing power through the last wage negotiations. Furthermore, statutory pensions in Germany increased markedly in July.
Unabated appetite for consumption
While economic and income expectations suffered marked losses this month, the Germans' appetite for consumption remains unabated. The propensity to buy indicator even gained a point, climbing to 55.4 points. This puts it at exactly the same level as this time last year.
It would seem that Brexit cannot affect the propensity to consume in the long term. This is surprising at first glance, especially given the decline in income expectations. At second glance, however, this seems very plausible. While the Germans expect the Brits' vote to negatively impact the German labor market in general, when asked whether they believe their own workplace to be at risk, the vote was clear: 95 percent of employees said they are not currently worried about their job. Just 3 percent are inclined to believe their workplace is at risk.
This supports the theory that GfK has already voiced several times: Propensity to consume – especially for larger purchases – depends considerably on whether employees are worried about their jobs. Job security creates certainty with which consumers can plan for the future, and this is a decisive aspect, especially for larger purchases for which consumers may need a loan, tying them down financially in the long term.
Consumer climate stops upward trend
The overall index is forecasting 10.0 points for August 2016, following 10.1 points in July. This means that the upward trend – at least for the moment – has come to a halt.
The Brits' decision to leave the EU is an important reason for the slight rise in uncertainty with regard to further economic development.
Despite this slight decline, private consumption should remain an important pillar of the German economy this year. GfK confirms its prognosis that real private consumer spending will rise by around 2 percent this year. This is supported by the sustained good conditions in the employment market and the considerable growth in income coupled with very low inflation.
The consumer climate could be hit hard in particular if consumer concerns about losing their jobs rose significantly. This is not currently the case, however. That being said, the increased terror threat currently prevalent in Germany could fuel the uncertainty further. This could then also have a negative impact on consumer mood.
About the study
These findings are extracts from the “GfK Consumer Climate MAXX survey,” which is based on approximately 2,000 consumer interviews conducted each month on behalf of the European 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 durable consumer goods, non-durable consumer goods, and services markets. The GfK Consumer Climate survey has been conducted since 1980.
The consumer climate explicitly refers to all private consumer spending. However, depending on the definition, only 30 percent of private consumer spending is attributable to retail. The remainder is attributable to services, travel, rent, health services, and the entire personal care segment.
GfK's forecast for 2015 was a rise in consumption of at least 1.5 percent. According to data from the German Federal Statistical Office, private consumption rose by 1.9 percent in real terms in 2015. Again, this does not concern retail sales but instead refers to total consumer spending.
Willingness to buy – like all the other indicators – is an indicator of sentiment. It examines whether consumers think it is currently advisable to make major purchases. Even if they answer “yes,” two further requirements need to be fulfilled for a purchase to be made: Consumers must have the money that is required for such a major purchase and they must also view this acquisition as necessary. In addition, it only concerns durable consumer goods, which also require a larger budget.
The findings of the consumer climate survey are based on approximately 2,000 interviews conducted each month on a representative sample of the German population. This survey tool is subject to continuous quality controls, particularly with respect to its representativeness. The fact that the results are used and recognized in the field of empirical legal research (for example, with respect to the likelihood of confusion between products) is a testament to the exceptionally high quality of this survey. This means that the results are quality approved by experts and must stand up in court.
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