Record German growth boosts consumer confidence: institute

26th August 2010, Comments 0 comments

Record growth is lifting the spirits of Germany's traditionally cagey consumers, the GfK institute said Thursday as its household confidence index pointed to a sustained expansion of Europe's biggest economy.

GfK's indicator of household sentiment posted a small increase to 4.1 points from 4.0 a month earlier, a figure that was itself revised higher, thanks to significant increases in expectations for the economy and personal incomes.

"The extremely good news on the economic development and continued positive reports on the labour market have led to robust consumer sentiment in August," a statement said.

"Consumer sentiment in August is strongly influenced by the substantial rise in German gross domestic product in the second quarter of this year," it noted.

The German economy posted record growth of 2.2 percent in the second quarter of 2010 from the previous three-month period, and the central bank has forecast a full-year expansion of around 3.0 percent.

A key factor in the economic surge was rising consumption, traditionally a weak point of Germany's export-led economy.

"At least in the coming months it looks as if a new proverb could read: 'Don't count out the German consumer'," ING senior economist Carsten Brzeski said.

Households have also been cheered by better prospects for employment and a progressive end to short-time work schemes employed as the country was hit by its worst post-war recession last year.

In July, German unemployment stood at 7.6 percent of the workforce.

A sub indicator of consumer's willingness to make large purchases remained unchanged but the fact it did not decline following trips to the TV store ahead of the football World Cup was considered good news by many.

GfK's survey of some 2,000 people found "there are currently good indications that consumer sentiment in Germany is experiencing a sustained upward trend."

It was released a day after the Ifo research institute said German business confidence had reached a three-year high, regaining levels seen before the global financial crisis erupted in mid 2007.

GfK nonetheless noted that planned government austerity measures and the expiration of stimulus programmes "are evidently preventing a more substantial upward trend" in household confidence.

But if business activity keeps expanding, inflation stays under control and job prospects improve further, "private consumption can be expected to contribute its part in the strong recovery of the German economy this year."

© 2010 AFP

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