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Consumer confidence still strong despite recession

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Consumer confidence still strong despite recession
Will it be fish sticks or Halibut tonight? Photo: DPA
10:32 CEST+02:00
German consumer confidence is resisting a deep recession in Europe's biggest economy but could still be done in by rising unemployment, the latest survey by the GfK research institute showed on Monday.

A widely-tracked index compiled by GfK was stable at 2.5 points for May, the Nuremberg-based think tank said, after it revised the April reading upwards to 2.5 percent from 2.4 percent previously.

"The consumer climate is proving to be surprisingly resilient in the face of all the gloomy predictions" for a sharp drop in German output this year, a statement said.

GfK's survey of around 2,000 people is the leading barometer of household confidence in Germany, which is suffering its worst recession in six decades.

The survey measures income expectations as well as consumers' outlook on the economy in general and their propensity to make major purchases.

Household confidence has held up owing to a very successful government car scrapping bonus, lower energy prices and higher pension payments, GfK found.

Hopes for an economic turnaround towards the end of the year, as demonstrated by an increase in the Ifo business climate index last week, have also helped keep consumers' moods from sinking, the statement said.

It added however that downbeat growth reports "which warn that the German economy will shrink by six percent in 2009, are likely to severely test consumer sentiment."

A sub-index which measures consumers' propensity to make large purchases dropped slightly, but remained well above its level of a year ago, as Germany's car scrapping scheme "is keeping consumer sentiment high," GfK said.

UniCredit economist Alexander Koch was unimpressed with the latest results however, commenting that "the cautious breeze of an upward trend in consumer confidence observed since last October has stalled."

The car-scrapping premium of €2,500 ($3,300) would help through the second quarter, but a steep rise in unemployment would churn up stiff headwinds, he warned.

"An inevitable setback in car sales and the in-general tarnished propensity to buy, driven by the labour market developments, should bring back weakness in private spending," Koch said.

GfK acknowledged that "the greatest hazard jeopardizing further development of the consumer climate comes from the job market."

But it added that "while consumers remain very pessimistic, the downward spiral of the indicator which began in the middle of 2007 and continued until the beginning of this year, does seem to be gradually coming to an end."

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