German consumer outlook up for September, GfK says

[August 27, 2009]  FRANKFURT (AP) -- German consumers' confidence in their economy -- Europe's largest -- continued to rise as growth and income expectations for September increased from August, a leading survey said Thursday.

The Nuremberg-based GfK research group said its forward-looking Consumer Climate Survey rose to 3.7 points for September from 3.4 points the previous month as more people expected an economic recovery.

The group said reports from across Germany suggest the downward spiral in the German economy has ended, but that on a long-term comparison consumer sentiment remains at a relatively low level.

"The consumer climate is currently proving to be a significant support to the German economy, as the recently published figures from the Statistisches Bundesamt (Federal Statistical Office) confirm," the GfK wrote in its report.

That data showed Germany's economy grew in the second quarter for the first time since last year, with real private consumer spending rising 0.5 percent compared with the same period last year.

"There is no denying that the German consumer proved to be surprisingly robust this year," Andreas Rees, a UniCredit economist, wrote in a research note. "However, in our view, this has little to do with supernatural events, but so far, sound fundamentals for private households."

Rees warned that while consumer spending will rise again in the third quarter, it will see a backlash from declining auto sales as the government's cash-for-clunkers program runs dry. Furthermore, more cars being sold now means less cars will be sold in the future.

The Federal Statistical Office said in a separate report Thursday that German consumers spent euro36 billion ($51 billion) on motor vehicles during the first half of the year, thanks to the government's scrapping premium, which pays consumers euro2,500 if they trade in a car at least nine years old and by a more efficient one.

The scrapping premium contributed to a 0.1 percent increase in household expenditure in the first half of the year, compared to the first six months of 2008. Without the increase from passenger cars, consumer spending would have fallen 1 percent for the period, the agency said.

Rees also warned that inflation may start rising again and the labor market will deteriorate further, which will put a crimp on disposable income and consumer spending.

"To be crystal-clear: The major driver for the German economy will not be Mr. Average Citizen, but once again export-dependent companies. In the fourth quarter 2009 and the first quarter 2010, we expect consumer expenditures to shrink," Rees said in his report.

Germany, Europe's biggest economy, fell into recession last year as the global crisis sapped demand for its exports.

The number of jobless have crept up recently, although the impact of the crisis has not yet been dramatic because many employers have used short-time working arrangements to preserve jobs.

The GfK said economic expectations have continued to rise since the beginning of the year. The indicator increased for the fifth straight time, by 6.5 points for the month to minus 7.5 points, and is 14 points higher compared with September 2008.

"Inflation is disappearing and consumers have more money in their pockets, which is being expressed by a rise in income expectations. Stable or even falling prices, as well as an ongoing, relatively steady labor market, have also resulted in an improvement in the propensity to buy," the GfK wrote in its report.

The group said income expectations had continued to rise in September after their return to positive territory in July. The reading is now at 8.8 points, a 7 point increase since August, and a 25 point increase on the year ago period.

On Wednesday, Germany's Ifo Business Climate Survey, conducted by the Institute for Economic Research at the University of Munich, said its reading of German business sentiment rose to 90.5 points in August from 87.4 points in July. Participants' expectations for the economy also improved in August, to 95 points from 90.4 points in July.

The GfK is based on around 2,000 consumer interviews conducted each month.

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On the Net:

http://www.gfk.com/

[Associated Press; By GEORGE FREY]

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