Consumer sentiment in Germany developed positively on the whole in August, with consumers appearing to digest the shocking Brexit news very well. The overall index for consumer climate is forecasting 10.2 points for September, following 10.0 points in August. Income expectations and propensity to buy are seeing improvements, while economic expectations suffered slight losses.
The Brits' decision to leave the EU only seems to have caused temporary uncertainty among German consumers. This is signaled by the increases in both income expectations and propensity to buy. Economic expectations, on the other hand, once again suffered slight losses, following significant losses in the previous month.
Economic prospects with slight losses
Following the noticeable decline in the previous month, the economic indicator only recorded slight losses in August. The indicator fell by 0.8 points to 8.6 points. It therefore remains in the positive range, putting it above its long-term average of 0 points. The indicator is down by 8 points from the same period last year.
This is probably due to the three attacks in Bavaria in July 2016, which caused uncertainties to rise slightly with regard to general economic development, thus preventing economic expectations from increasing.
Nevertheless, citizens still expect moderate growth in the German economy in the coming months. This is also confirmed by the first gross domestic product (GDP) calculations recently published by the German Federal Statistical Office for the second quarter of 2016, according to which GDP increased by 0.4 percent in the second quarter compared with the previous period. In the first three months of this year, growth was still a substantial 0.7 percent. The increase in the second quarter was 1.8 percent in comparison to the previous year (following 1.9 percent in the first three months of 2016) (Source: German Federal Statistical Office, press release dated 12 August 2016 www.destatis.de). Here, it was predominantly external contributions that boosted growth. Consumption also supported growth, while weak gross investments slowed it down.
Income expectations: noticeable increase
The ups and downs in income expectations also continued into August – however, at a very high level. Following considerable losses in July, the indicator is now markedly on the rise again. An increase of 8.6 points almost made up for the losses experienced in the previous month (-9.9 points). At 58.3 points, it has exceeded the 50-point mark again, standing at around five points above the previous year's value.
While consumers are rather reserved about overall economic development in the future, they are downright euphoric about their own financial situations. And this attitude is completely justified. An excellent and stable employment situation, considerable pay rises for employees and retirees as well as a virtual lack of inflation will ensure a distinctly optimistic attitude that also continues into the coming months.
Propensity to buy: appetite for consumption continues to rise
Considerable improvements in income prospects also boost appetite for consumption further. Following the growth in the previous month, the propensity to buy indicator added 1.9 points in August, climbing up to 57.3 points. Compared with the same time last year, this represents an increase of 5 points.
The German consumers' appetite to buy thus remains unabated – despite the Brexit decision and terror threat. Consumers appear to be basing their decisions on the currently prevailing hard facts about the employment market, income and inflation, which are clearly giving the green light for consumption. In particular, the excellent state of the employment market means that employees still have next to no concerns about losing their jobs. This provides a solid basis for planning for the future, especially with regard to large purchases.
Furthermore, the European Central Bank (ECB) is currently sending signals that interest rates will continue to remain low in the coming months. This should also boost consumption.
Consumer climate is on the rise again
The overall index is forecasting 10.2 points for September 2016, following 10.0 points in August, thus continuing the upward trend that was disrupted in the previous month.
The consumer climate has therefore proven to be completely resistant to the recent rise in general uncertainty caused by the Brexit decision and the noticeably increased fear of terror following the attacks in Bavaria.
GfK confirms its prognosis that real private consumer spending will rise by around 2 percent this year. Domestic demand therefore remains an important pillar of growth. This is also confirmed by the first reports on GDP issued by the German Federal Statistical Office. Even the top German statistics authority believes that private consumption is an important pillar of economic growth.
This means that consumption would suffer in particular if employees had to start worrying about their jobs again, which does not seem to be on the cards at present.
About the study
The results are an extract from the "GfK Consumer Climate MAXX" study and are based on around 2,000 consumer interviews per month conducted on behalf of the European Commission. This report presents the indicators in graphical form and provides predictions and detailed comments on the indicators. It also provides information on consumer spending plans for 20 areas in the consumer goods and services markets. The GfK Consumer Climate Study has been carried out since 1980.
Consumer climate refers explicitly to all private consumer spending. However, the retail trade, depending on the definition used, accounts for only around 30 percent of private consumer spending. Services, travel, rent, health services, and the entire wellness sector account for the rest.
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.
Propensity to buy, like all other indicators, is a sentiment indicator. It queries whether consumers currently consider it advisable to make larger purchases. Even if they answer "Yes" to this question, there are two further requirements for making a purchase: The consumer must have the necessary money for such a large purchase and must also see a need to make this purchase. Furthermore, this only actually concerns durable goods, which also require a larger budget.
The results of the consumer climate survey are obtained from monthly interviews of around 2,000 people who are representative of Germany's population. This survey tool is subject to constant quality controls, particularly in order to ensure that it is representative. The particularly high quality of this survey is also demonstrated by the fact that it is used and approved for surveys in the field of empirical legal research (for example, the danger of confusing products). This means that the results have the status of an expert report and must be recognized in court.
For more information: Rolf Bürkl, tel. +49 911 395-3056 and at http://consumer-climate.gfk.com/login/
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