Merkel predicts more jobs as consumer zeal signals recovery

Merkel predicts more jobs as consumer zeal signals recovery
Photo: DPA

German consumer and business confidence were at three-year high points on Tuesday and Chancellor Angela Merkel forecast that unemployment could fall below three million in Europe's biggest economy.


"We may get to three million or perhaps slightly below," Merkel said after the economic research group GfK released its latest survey of consumer sentiment under the headline, “Consumer Climate at Three-Year High.”

On Friday, the Ifo research institute said business sentiment in Germany rose in September to levels last seen in mid-2007, suggesting that an expected slowdown will not mean a return to recession.

"Growth indeed seems to be stronger than we had expected," Merkel told a congress of the German industrial federation (BDI) in Berlin.

The household sentiment index compiled by GfK and published for the month to come posted a solid gain to 4.9 points from 4.3 in September, a figure which was itself revised higher amid increased expectations for the economy, jobs and personal incomes.

A breakdown of Ifo's data meanwhile revealed particular optimism among retailers who assessed the current situation to be the best since a boom that followed German reunification in 1990.

"Consumers currently expect the economic upturn to continue in the coming months," a GfK statement added. "This is demonstrated by the sharp rise in economic expectations over the last three months," it added.

They posted a sharp gain to 45.2 points, the highest level since March 2001.

"The decisive factor in the strong sentiment among consumers is the extremely positive development of the employment market," GfK said.

In August, the jobless rate was stable at 7.6 percent of the workforce.

Barclays Capital economist Thorsten Polleit noted that a research unit at the Federal Labour Office forecast a drop in the number of unemployed "below three million in 2011 (which would mark the lowest level in nine years) even if the growth momentum slows in the second half of this year."

Polleit pointed also to an Ifo survey of around 1,000 personnel directors that found 87 percent of German firms wanted to increase staff levels in the coming 12 months.

Against that background, a GfK sub-index of consumers' propensity to buy moved away from a decrease and stagnation seen in previous months.

On Monday, the European Central Bank said growth in lending to the eurozone private sector picked up in August, with lending to households in the 16-nation area growing by 2.9 percent from the same month a year earlier.

Germany's economy posted strong growth in the first half of 2010, and while the pace has eased since then, is still on track for a full-year expansion of around 3.0 percent, economists and the central bank have said.

The government is expected to raise its official growth forecast of 1.4 percent in October.

GfK said that if the economy continued to grow, unemployment fell further and inflation remained tame, consumption could see modest growth this year.

"German consumers still hold the key for self-sustained growth. It looks as if they finally might be willing to use it," ING senior economist Carsten Brzeski commented.

The export-led economy is now also getting help from domestic consumption and business investment, underpinning hopes it will continue to act as the European locomotive.

GfK surveys around 2,000 consumers for its poll, which is conducted on behalf of the European Commission.



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