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German consumer confidence for August improved strongly, suggesting a recovery in the economy that is hit hard by recession.
According to the latest consumer climate survey from the market research firm GfK, the forward-looking consumer sentiment index rose to 3.5 points for August. The reading for July was slightly revised to 3 from 2.9 points. Economists expected the index to stay at 2.9. Although, the index for August strengthened, sentiment remained at a very low level in a longer term comparison.
To a large extent, a sustained stabilization in consumer climate would depend on further development in the labor market. The research firm reported that a considerable rise in the unemployment again in late autumn would possibly become an endurance test for consumer sentiment.
The Nuremberg-based GfK group conducts its consumer climate MAXX survey each month on behalf of the EU Commission. The survey is based on nearly 2,000 consumer interviews.
Economic pessimism amongst consumers eased after some economic institutes signaled an end to the downturn. Accordingly, economic outlook stood at minus 14 versus minus 22.6 in June. This was the fourth consecutive increase as expectations moved away from their recession low. Consumers believe the steep downturn in the economy has come to an end, still they do not consider the recession to be over.
At the same time, income expectations in July reached positive territory for the first time since April 2008, with the index rising to 1.8 from minus 3.3 in June. Sentiment regarding incomes improved on disappearing inflation and possibly due to an average increase of 2.4% in pension as of July 1. Further, lower health insurance premiums and income tax relief triggered by stimulus eased the situation.
The index measuring buying propensity improved to 25.1 from 14.7. Compared to the previous year level, the indicator has improved by a good 51 points. Based on the past experience, consumer price expectations are directly linked with willingness to spend money.
Technical consumer goods currently became popular with consumers. A double digit increase was reported in the car segment, though this was primarily due to economic policy in the form of the scrappage allowance. Further, the GfK said propensity to buy was possibly encouraged by the current low interest rates and the financial crisis have made saving unpopular.
Earlier, the Munich-based Ifo Institute for Economic Research reported a fourth consecutive month of rise in business climate. The index climbed to 87.3 in July from 85.9 in June.
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