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German consumer confidence tanks

AFP · 24 Jun 2008, 11:59

Published: 24 Jun 2008 11:59 GMT+02:00

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The latest barometer of consumer sentiment in Europe's biggest economy slipped to 3.9 points from a revised figure of 4.7 points in its previous reading.

A year ago, the confidence index stood at 7.4 points, and the latest reading marked the lowest level since December 2005, when it dropped to 3.5 points.

"German consumers have now really thrown in the towel," commented UniCredit Markets analyst Andreas Rees.

Gfk said in a statement that because German inflation was expected to remain stuck around 3.0 percent in coming months, its outlook for consumption growth this year had been revised down to 0.5 percent from a previous 1.0 percent.

Consumers said they were now less inclined to make major purchases, and less optimistic regarding their personal income and the economy in general.

The study questioned around 2,000 German residents and found that "repeated

announcements of new record petrol and diesel prices have compounded consumer fears of a loss of purchasing power."

But for Rees, "the downturn in consumer sentiment is probably more than the simple loss in purchasing power.

Story continues below…

"We think that part of the equation is also the loss of confidence in the future growth outlook," he said.

Positive points like falling employment and even substantial wage increases have had little impact, GfK found, because the raises were in large part offset by inflation, which was 3.0 percent in Germany in May and a record 3.7 percent for the eurozone as a whole.

On Monday, the Ifo economic institute said German business sentiment had fallen to an 18-month low point in June, owing to high oil prices, weaker economic growth in key markets, tighter credit conditions and the euro's rise against other major currencies.

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