Merkel positive on jobs as consumer confidence climbs

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German consumer and business confidence hit three-year highs on Tuesday as Chancellor Angela Merkel forecast the number of jobless 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 under the headline -- 'Consumer Climate at Three-Year High.'

On Friday, the Ifo research institute said German business confidence in September had hit levels last seen in mid-2007, suggesting that an anticipated 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 October rose to 4.9 points from 4.3 points for September, a figure that was itself revised higher amid brighter expectations for the economy, jobs and personal incomes.

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

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

This reading jumped in the October forecast 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.

Barclays Capital economist Thorsten Polleit noted that a research unit at the Federal Labour Office has 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."

"It is almost a miracle," BDI president Hans-Peter Keitel commented.

Polleit pointed also to an Ifo survey of around 1,000 personnel directors that found 87 percent of German firms hoped to hire more workers in the next 12 months.

Against that background, a GfK sub-index of consumer's propensity to buy moved upwards, compared with 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 on an annualised basis, suggesting consumer sentiment was turning stronger.

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.

"There will surely be a (figure) two followed by a very big number," Economy Minister Rainer Bruederle told the BDI congress.

"The recovery is very strong and rests on a broad foundation," he added.

GfK said that if the economy continued to grow, unemployment fell further and inflation remained tame, consumption could post 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 said.

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

© 2010 AFP

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