Thursday, April 26, 2007

Germany May GfK Consumer Confidence Tops Expectations, Thursday, April 26, 2007 10:27:07 AM

German consumer confidence improved more than expected, a key survey revealed Thursday, signaling strong economic upswing in the largest Euro zone economy.

The latest GfK survey showed that the consumer climate indicator surged to 5.5 points for May from 4.4 in April. The level came in way above expectations. Economists expected the index to edge up to 4.5 from 4.4.

The forward looking GfK survey is based on nearly 2,000 consumer interviews conducted each month on behalf of the EU Commission.

The Nuremberg-based GfK said, “With the ending of the anticipated weak phase, the consumer climate made a significant recovery in the first quarter of 2007. Consumer expectations in terms of the economy reached an all-time record level this April, with income expectations and the propensity to buy also on an upward trend.”

The survey results indicate that consumers are increasingly embracing the apparent signs of strong pick-up in German economic growth. On Wednesday, the German government raised its 2007 GDP growth forecast to 2.3% from 1.7% earlier. Growth for 2008 is estimated at 2.4%. Many economic research institutes also upgraded their 2007 growth forecasts to 2.4%, which is significantly higher from the 1.4% prediction last autumn.

The sub-indicator for economic expectations rose nearly eight points to touch a level of 61. The GfK noted that the level represents an absolute peak value since monthly consumer climate surveys first began in 1980.

The survey agency noted that “The overall good situation on the job market and further marked increases in wage and salary levels mean that in addition to the generally positive economic outlook, income expectations are also rising sharply. After the weak phase in the first quarter, these positive facts are now also likely to encourage the propensity to buy.” GfK added that “The fall in unemployment levels is even more rapid than originally anticipated in August last year.”

Income expectation showed a marked increase in April. The corresponding indicator shot up by 14 points to reach 29.6, logging the fourth climb in a row. The 29.6 reading was surpassed only once, in April, nearly six years ago.

Consequently, the propensity to buy indicator climbed for the second straight month. The index gained six points to stand at minus 6.5 points. Going forward, the propensity to buy is expected to recover further. The GfK stated that the trend confirms its anticipation that the weak phase was confined to the first quarter, largely due to the special effect resulting from the VAT hike earlier in the year.

The consumer confidence report came on the heels of upbeat business confidence data. German business sentiment improved more-than-expected in April, the closely watched Ifo survey indicated Wednesday, as manufacturers brushed aside a stronger euro. The Ifo business climate indicator for trade and industry stood at 108.6 for April, the Munich-based Ifo Research institute said. The headline index is holding very near its peak of 108.7 attained in December 2006. Business sentiment in the largest Euro zone economy enhanced for the second month in a row in April.
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