German consumer sentiment hits six year high

Morale among German consumers rose to its highest level in almost six years heading into July thanks to a robust labour market and strong wage hikes, adding to signs that Europe’s largest economy is slowly recovering after a weak start to 2013.

GfK market research group said its forward-looking consumer sentiment indicator, based on a survey of around 2,000 Germans, climbed to 6.8 going into July - its highest level since September 2007 - from 6.5 in June.

The improvement will be welcome news for the government, which is relying on domestic demand to prop up growth this year as foreign trade, the economy's traditional growth driver, suffers from the euro zone crisis and a slowdown in China.

It should also offer some hope to struggling euro zone states which are seeking to offload more of their goods on wealthy Germans as they seek to rebalance trade with Germany.

"Optimism appears to be unbroken," said Rolf Buerkl, a researcher for Nuremberg-based GfK.

“The income outlook of Germans has improved further from an already high level on account of the stable employment situation and good collective bargaining agreements, which have also benefited economic expectations,” he added.

German workers have secured hefty wage hikes of up to 6.6 per cent this year. That, combined with moderate inflation, has boosted shoppers’ purchasing power at a time when the paltry interest rates being offered by banks give no incentive to save.

The survey nonetheless showed Germans’ willingness to buy dipped in June, though GfK stressed that it remained at a high level overall.

GfK said the stable labour market and strong wage deals were giving Germans the planning security they needed to splash out on big-ticket items like property, especially because they were currently able to take out loans and mortgages on good terms.

Household spending was the German economy’s saving grace in the first three months of this year, managing to bring Europe’s growth engine back from the brink of recession after it shrunk in late 2012 due to weak investments and slow foreign trade.

GfK reiterated its prediction that private consumption, which makes up nearly 60 per cent of German gross domestic product (GDP), would rise by about 1 per cent in real terms this year as long as the euro zone crisis does not worsen.

Reuters