German consumer sentiment on the rise: GfK

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German consumer sentiment pursued an upward trend in January, the GfK market research group said Tuesday, with shoppers propensity to buy improving significantly in the biggest European economy.

Gfk said its household confidence index would rise to 5.7 points in February from a revised 5.5 points this month.

It had initially forecast a dip to 5.4 points in January, which would have been the first decline after six increases.

"The propensity to buy was a key factor in ensuring that the consumer climate returned to its upward trend in January following a short interruption," a GfK statement said.

The group added that "encouraging prospects for the employment market were responsible for economic expectations remaining at a high level at the start of this year."

Although consumer's personal income expectations declined slightly, most of the roughly 2,000 people polled remained "decidedly optimistic with regard to (Germany's) economic performance in the early part of the year."

ING senior economist Carsten Brzeski said measures including lower tax benefits, cuts in parent's aid and higher social security contributions gave consumers "a small foretaste of how austerity feels in their own pockets."

But strong economic fundamentals suggested they should nonetheless contribute to growth in 2011, providing support for an economy that has typically relied on exports, GfK said.

In its latest reading of German business sentiment released Friday, the Ifo economic research institute found that confidence began the year at a fresh all-time high.

Substantial drops in sub-indices for the wholesale and retail sectors had cast doubt however over whether the astonishing German recovery would spread to consumer spending.

But "with increasing wages, dropping unemployment and pent-up demand, private consumption should become an important growth driver this year," Brzeski said.

© 2011 AFP

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