core sector communique

Consumer climate remains constant

26 July 2012

Findings of the GfK Consumer Climate study for Germany for July 2012

Nuremberg, 26 July 2012 – The variable development of the consumer mood once again continued in July. On the whole, income expectations and willingness to buy remained at very good levels. The latter improved slightly while income expectations dropped a little. In contrast, economic expectations deteriorated further. Following a value of 5.8 points in July, the overall indicator is forecasting a value of 5.9 points for August.

The ongoing banking and debt crisis in Europe is causing the economic optimism of Germans to fade. Consumers are increasingly fearful that the German economy will now also be drawn into the crisis. A second consecutive clear decline in the economic outlook verifies this trend. This is contrasted by the indicator values for income expectations and willingness to buy, which both sustained their distinctly positive levels in July. The latter in fact improved slightly and income expectations only fell by a small amount.

Economic expectations: low growth expected

Economic expectations dropped quite significantly for the second time in a row. At -8.6 points, the decline is almost half that of the previous month, taking the indicator to a current value of -5.6 points. For the first time since December last year, the economic mood has therefore fallen into the negative range, so below the long-term average of 0 points

Following a recent escalation once more as a result of the financial difficulties suffered by a number of Spanish banks, the ongoing crisis has pushed the major European states of Italy, Spain and the UK back in to recession. As these countries are important trading partners for Germany, their economic weakness is certain to have a negative impact on export developments. German businesses seem to share this view, as confirmed by a renewed decline in the ifo business climate index in July. Germans are expecting the growth in the gross national product to be lower than at the beginning of the year. However, experts are of the unanimous opinion that a recession will be avoided in Germany.

Income expectations: at high level despite marginal fall

Income expectations continue to defy the worsening economic mood. On the whole, income expectations have remained at a distinctly high level. The fall of 3.8 points in July is rather modest, not even halving the increase of 8.1 points in the prior month. With two exceptions, the indicator has now been above 30 points for the last two years, which is a testament to its extremely stable development. At present, the indicator stands at 36.3 points.

Income expectations are therefore still resisting the increasing threats coming from outside Germany. Rising employment and significantly improved income rises in comparison with previous years due to better wage agreements are providing a considerable boost to the mood in relation to income. In addition, inflation recently also dropped below the psychologically important level of two percent, which further strengthens the purchasing power of income.

Willingness to buy: slight improvement

Despite the slight decline in income expectations, willingness to buy once again improved in July. The indicator rose the third consecutive time, improving by 3.1 points to 35.8 points and so stands at approximately the same level as in the previous year.

Willingness to buy continues to be more or less unaffected by the escalating economic risks. The stable employment situation with falling unemployment and the resultant income increases are improving planning security. This is vital for major purchases, in particular. The current financial crisis is also impacting willingness to buy. The lack of trust in financial markets and historically low interest rates mean that saving money does not appeal. Consequently consumers are more likely to make high-value purchases, such as real estate and also furniture.

Consumer climate: remains stable

Following a value of 5.8 points in July, the overall indicator is forecasting a value of 5.9 points for August. The consumer climate is therefore continuing its stable development. The escalating risk to the economy has so far not had an impact on the indicator value.

Alongside the improvement in willingness to buy, the consumer mood is currently further stabilized be a reduced willingness to save money. Private consumption in Germany is therefore increasingly an essential pillar for the economy. Exports will remain a key factor for economic growth in future, but will probably not retain the distinctly dominant position of recent years. Consequently it will be even more important that private consumption, which constitutes almost 60 percent of the gross national product, becomes a second pillar for stable economic growth.

GfK confirms its prediction made at the beginning of the year that private consumption in real terms will increase by one percent in 2012.

The following table shows the development of the individual indicators in June in comparison with the previous month and previous year:

	July 2012	June 2012	July 2011
Economic expectations	-5.6	3.0	44.6
Income expectations	36.3	40.1	34.6
Willingness to buy	35.8	32.7	34.1
Consumer climate	5.8	5.7	5.4

GfK Consumer Climate indicator (as at: July 2012)

The survey

These findings are extracts from the “GfK Consumer Climate MAXX survey”, which is based on around 2,000 consumer interviews conducted each month on behalf of the EU Commission. The report contains charts, forecasts and a detailed commentary regarding the indicators. In addition, the report includes information on proposed consumer spending in 20 different areas of the consumer goods and services markets. The GfK Consumer Climate survey has been conducted since 1980.

About GfK

GfK is one of the world’s largest research companies, with more than 11,500 experts working to discover new insights into the way people live, think and shop, in over 100 markets, every day. GfK is constantly innovating and using the latest technologies and the smartest methodologies to give its clients the clearest understanding of the most important people in the world: their customers. In 2011, GfK’s sales amounted to €1.37 billion