July 23, 2020 / 6:00 AM / in 23 days

German stimulus measures lift consumer morale - GfK

    BERLIN, July 23 (Reuters) - German consumer morale improved
more than expected heading into August, helped by a temporary
cut in value-added tax (VAT) as part of the government's
stimulus package to help the economy recover from the
coronavirus shock, a survey showed on Thursday.
    The consumer sentiment index, published by the GfK institute
and based on a survey of around 2,000 Germans, rose to -0.3
heading into August from a revised -9.4 in the previous month.
    This was the third monthly increase in a row and beat a
Reuters forecast for -5.0.
    GfK researcher Rolf Buerkl said the development in consumer
sentiment during the coronavirus pandemic resembled a V-shaped
recovery in which a sharp drop was followed by a quick rebound.
    "There is no doubt that the reduction in value-added tax has
contributed to the extremely positive progress. It is clear that
consumers are looking to make major purchases earlier than
planned, which will help boost spending this year," Buerkl said.
    But he cautioned that the positive effect could be temporary
as consumers might scale back purchases once the reduced VAT
rates expire in January 2021.
    The German stimulus package includes a VAT cut for regular
goods to 16% from 19% and for food and some other goods to 5%
from 7% from July 1 until Dec. 31. The reduction will cost the
federal government up to 20 billion euros ($23.17 billion).
    Consumers' propensity to buy and their personal income
expectations both improved for a third consecutive month, GfK
said. They also became more optimistic regarding the development
of the economy as a whole.
    Buerkl said that consumers were increasingly gaining the
impression that the German economy was likely to recover soon,
helped by the government's bumper stimulus measures, as long as
the infection rate in Germany remains low.
    "A second lockdown would quickly shatter any hope of
economic recovery," Buerkl said.                   
                                AUG 2020   JULY 2020  AUG 2019
 Consumer climate                 -0.3       -9.4        9.7
 Consumer climate components    JULY 2020  JUNE 2020  JULY 2019
 - willingness to buy             42.5       19.4       46.3
 - income expectations            18.6        6.6       50.8
 - business cycle expectations    10.6        8.5       -3.7
    NOTE - The consumer climate indicator forecasts the
development of real private consumption in the following month.
    An indicator reading above zero signals year-on-year growth
in private consumption. A value below zero indicates a drop in
comparison with the same period a year ago.
    According to GfK, a one-point change in the indicator
corresponds to a year-on-year change of 0.1 percent in private
    The "willingness to buy" indicator represents the balance
between positive and negative responses to the question: "Do you
think now is a good time to buy major items?"
    The income expectations sub-index reflects expectations
about the development of household finances in the coming 12
    The additional business cycle expectations index reflects
the assessment of those questioned of the general economic
situation in the next 12 months.

($1 = 0.8633 euros)

 (Reporting by Michael Nienaber, Editing by Maria Sheahan)
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