GfK's index forward looking index for July 2008, which is based on a survey of about 2,000 people, declined to 3.9 from a revised 4.7 in June, according to the latest data released by the Nuremberg- based market-research company earlier this morning.
According to GFK spiraling energy costs and the threat of a further massive rise in the price of gas are increasingly dampening the consumer mood in Germany. Both economic and income expectations dropped for the second time in succession, and the same applies to the propensity to purchase. As a result, the consumer climate indicator for July is forecasting a value of 3.9 points after a revised 4.7 points in June. In light of an inflationary trend which seems to be establishing itself around the three percent mark, GfK has downgraded its previous 2008 forecast for private consumption in real terms from 1%, which was based on an anticipated rate of inflation of 2.5%, to 0.5%.
After losing almost 10 points in May the economic expectations indicator once again declined - by just under 6 points - and now stands at 7.5 points. However, this means that the indicator remains in the positive range, and is still above the long term average of 0 points. The crisis on the financial markets, which is evidently still far from over, the foreseeable cooling of the global economy, which is bound to hit the USA particularly badly, and fears concerning personal purchasing power are causing consumer optimism to wane. In addition, the continuing strength of the euro is likely to weaken the positive growth dynamic of exports.
Continuing inflation is also making itself felt on income expectations. This indicator fell in June by over 3 points to its current value of 7.2 points. The last time the indicator was below this level was December 2006. The longer the rate of inflation in Germany remains stuck around the three percent mark, the greater the danger of an anticipated loss of purchasing power on the part of German households. Even the potentially positive effects on private income generated by the rising rate of employment may well be negated by ongoing fears concerning the rising cost of living and high energy prices.
Propensity To Buy
Falling income expectations are leading to a corresponding drop in consumer propensity to buy. After losing 16 points in May, this indicator is once more down - by over three points - and currently stands at -23.7 points, its lowest value since June 2005.
High energy prices and the threat of further drastic price rises, for example, for gas, are consolidating expectations of inflation, which, in turn, is dampening the enthusiasm of German consumers to make purchases. Consumers are assuming that they will have to pay more for energy in the future and that consequently, this money will no longer be available for other purchases.