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German consumer confidence for December unexpectedly dropped for a second month as economic and income expectations dropped moderately on an expected rise in unemployment.
The forward-looking consumer confidence index for December dipped to 3.7 from 4 in November, a monthly survey conducted by the Nuremberg-based GfK Group showed Wednesday. Economists were expecting the index to remain at 4 for December.
While the consumer confidence index is for the upcoming month, its sub-indexes are for the current month. Among the three sub indexes, households' propensity to buy stabilized at a good level, conversely, economic and income expectations dropped back moderately.
The GfK conducts its consumer climate MAXX survey each month on behalf of the EU Commission. The survey is based on nearly 2,000 consumer interviews.
After continuous upward trend in the past seven months, German economic expectations dropped in November, due to growing public fears of rising unemployment. "Even if all the experts are predicting an economic upswing for the coming months, consumers seem to be regarding such statements with caution at the moment," GfK said in a report. The corresponding indicator lost just under 8 points and now stands at 0.9 points. However, it recorded a marked increase of 31 points over the same period a year ago.
At the same time, German consumers are still assuming that the process of economic recovery will be sustained next year. Being an exporting nation, Germany should certainly benefit from the improved prospects for global trade, GfK said.
Households expect a marked rise in unemployment in the coming months, the survey found. According to German Council of Economic Experts forecasts, unemployment will be running at an average rate of 4 million in 2010, which would be 600,000 more than in this year.
Hence, income expectations also fell. The index fell by 6.7 points to stand at its current level of 6.2 points. The market research group said further decline has now halted the upward trend recorded since the beginning of 2009. However, the indicator is still up 13 points on the same period of the previous year.
Further, consumers' propensity to buy stabilized in November after falling in the previous month. The indicator rose by 0.2 points to 26.3 points. The index is sustaining its generally pleasing level, GfK said. From the previous year, the index rose 33 points.
"A worsening labor market could even dent the last willingness to spend," ING economist Carsten Brzeski said. "This explains why the German government is about to decide on an extension of the successful short-term working schemes." The German government was set to end its short-term working scheme by the end of this year. Based on recent official comments, the economist expects the government to extend the scheme atleast until the end of 2010.
Consumer confidence data came a day after Ifo Institute for Economic Research said business climate in Germany continued to increase for an eighth month in November to touch a fifteen-year high. A second estimate from the German statistical office showed on Tuesday that the largest Eurozone economy expanded 0.7% in the third quarter from the previous quarter, following the 0.4% increase seen in the second quarter. The economy exited recession in the second quarter, following four straight quarters of negative GDP growth.
In the near-term, however, the pace of growth is likely to slow, according to the government. Last week, Germany's Finance Ministry pointed out that the economy could grow at a slower pace in the fourth quarter, as uncertainty in the job market and income levels hit private spending. Moreover, the ministry said the strengthening of the euro could erode competitiveness of firms.
Finance Minister Wolfgang Schaeuble said on November 20 that it would be premature to say that the economy has overcome the crisis. Hence, it would be too early to remove stimulus measures now, he said.
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