Euro crisis, inflation sap consumer confidence

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25 May, 2011 Updated Wed 25 May 2011 14:06 CEST
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The eurozone debt crisis and higher energy prices have sapped German consumer sentiment, resulting in a third consecutive drop in the GfK index, the research institute said on Wednesday.

On the basis of a survey of 2,000 people done this month, the forecast index for June dropped to 5.5 points from 5.7 points in May.

"The worsening of the debt crisis in Greece and continuing high energy prices are dampening the optimism that German consumers have been exhibiting up to now," a GfK statement said.

"The still very positive general conditions in Germany, such as falling unemployment and the strong economic upswing, are currently being somewhat overshadowed," it added.

A breakdown of the results showed that shoppers’ propensity to make large purchases had declined and that dogged inflation had raised fears related to personal revenues.

Consumers were still relatively upbeat with respect to the country's economic prospects however, though that indicator declined slightly as well.

Economy Minister Philipp Roesler estimated Tuesday that business activity would expand by "at least" 2.6 percent this year.

The GfK poll stood in contrast to one published Tuesday by the Ifo research institute, which found business leaders generally upbeat about the situation at present, particularly in the retail sector.

Data released by the national statistics office showed that consumption gained 0.4 percent in the first quarter from the previous three-month period.

That was in large part the result of falling unemployment. But Andreas Rees, chief German economist at the Italian bank UniCredit, said: "Despite substantial tailwind via job creation, we do not think that the German consumer will completely take off this time."

Wages have not risen substantially while eurozone inflation of 2.8 percent has cut purchasing power, and an ageing German population is putting money aside amid fears that retirement pensions will not suffice, he explained.

"Private consumption has been the orphan of the German recovery," ING senior economist Carsten Brzeski commented.

"The softening of consumer confidence against the background of higher energy prices shows that commodity-driven inflation is probably the main threat for the German economy," he said.




2011/05/25 14:06

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