Consumer confidence hits five-year high

Consumer confidence in Germany, Europe's top economy, is continuing to defy the crisis and rose to the highest level for five years on the back of rising income expectations, data showed on Friday.

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Market research company GfK said its household confidence index was forecast to rise to 6.3 points in November, its highest level since October 2007, from 6.1 points the previous month, a statement said.

GfK said consumers' income expectations for the coming months had picked up noticeably, while both their assessment of the economic situation and willingness to spend had also improved slightly.

"Germans' fears of a recession have not increased further this autumn," the GfK wrote.

The headline consumer confidence reading is based on responses from about 2,000 households on their expectations about pay and the economy as a whole in the coming months, as well as their willingness to spend money.

The improved reading appears to fly in the face of increasing signs European powerhouse Germany is feeling the pain from the crisis after initial resistance, with the closely watched Ifo business confidence index dropping for the sixth consecutive month earlier this week.

This led some analysts to predict that Germany could soon fall into recession.

"German consumer confidence reached a fresh new high since 2007 in November despite signs of slowing activity," said Newedge Strategy analyst Annalisa Piazza.

"The outcome is stronger than expected and probably reflects the less volatile financial markets and hope that EU officials and the European Central Bank will find a way out of the ongoing financial crisis," she said.

Berenberg Bank economist Christian Schulz said: "It's not consumer confidence that is holding back growth in Germany.

"The fundamentals for German household spending remain positive," he said, pointing to stable inflation and low unemployment.

Nevertheless, other forward-looking indicators – such as Ifo, the ZEW index of investor confidence and even the EU Commission's consumer confidence index – were all pointing down, Schulz noted.

"Germany's economy is likely to stagnate until the end of the year as exports and investment remain weak under the weight of the euro crisis.

Private consumption may offset some decline in other GDP (gross domestic product) components," Schulz said.

"It looks as if nothing can spoil German consumers' good humour," said ING Belgium economist Carsten Brzeski.

"German consumers remain cool and serene despite the ongoing euro crisis," he said.

But Brzeski pointed out that "given past experience, optimistic consumers have never been sufficient to prevent the economy from falling into a recession. However, even if Germans have hardly become real happy-go-luckies, the current optimism is welcome news for the economy," he said.

AFP/jcw