December 21, 2018 / 7:06 AM / a month ago

German consumer morale holds steady heading into January - GfK

BERLIN (Reuters) - German consumer sentiment remained strong going into January, the GfK market research group said on Friday, suggesting that household spending in Europe’s largest economy will start 2019 on a solid footing.

FILE PHOTO: People walk through the Mall of Berlin shopping centre during its opening night in Berlin, September 24, 2014. REUTERS/Thomas Peter/File Photo

The GfK consumer sentiment indicator, based on a survey of around 2,000 Germans, was unchanged at 10.4 heading into January. That beat the forecast of 10.3.

Household spending has become a key growth driver in recent years as Germans benefit from record-high employment, hefty pay hikes and low borrowing costs but private consumption weakened during the third quarter, holding back overall growth.

“The persistent trade conflict between the USA, China, and the EU, as well as uncertainty caused by Brexit, is causing economic optimism among consumers to increasingly disappear,” said Rolf Buerkl, a researcher for Nuremberg-based GfK.

“German citizens see risks for their nation of exports predominantly in impending trade restrictions, such as higher customs duties. Dwindling exports are curbing growth,” Buerkl added.

Despite being more downbeat about the economy, consumers were more optimistic about their future income thanks to rising employment. Their willingness to make purchases declined but remained at a high level.

GfK said the prospects for consumption remained good for 2019 as long as the job market continues to develop stably.

However, it warned that if the trade conflict with the United States heats up or Britain exits the European Union without a deal in place, consumption could be hit. Budget policy in France and Italy could also cause conflict, it said.

The GfK survey was conducted from Nov. 30 to Dec. 14.

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 consumption. 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 months. The additional business cycle expectations index reflects the assessment of those questioned of the general economic situation in the next 12 months.

Reporting by Michelle Martin; Editing by Joseph Nasr

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