Findings of the GfK Consumer Climate study for Germany for July 2015

Nuremberg, July 29, 2015 - Consumer sentiment in Germany has stabilized in July. The consumer climate remains unchanged from the previous month. The overall indicator is forecasting 10.1 points for August. Income expectations improved their record level from the previous month once again while significant losses and moderate losses will need to be accepted in economic expectations and the willingness to buy, respectively.

The long and uphill struggle to find a solution to the debt crisis in Greece has avoided a bankruptcy for the time being. However, this is not boosting the economic expectations of German consumers. Instead, the indicator has had to accept losses for the second month in a row. Even if the willingness to buy has depreciated slightly, it remains at a very high level. Above all, the stable domestic conditions are playing a role in the income expectations of consumers. This indicator is even exceeding its peak level again, which it achieved last month for the first time since the reunification of Germany. It is thus an important pillar of the consumer climate.

Economic expectations losing ground

For two months now, the economic outlook of German consumers has lost significant ground. In July, the indicator fell by 6.5 points and has thus dropped to a value of 18.4 points. As a result, the economic indicator has lost just under 20 points within two months. However, it is still clearly in the positive range, i.e., above its long-term average value of 0 points. This means that Germans continue to expect that the country's economy will grow in the coming months - albeit not as strongly as they believed it would just a few weeks ago.

German consumers apparently assume that the hard-won solution in the debt dispute with Greece will have negative consequences on the German economy. However, the other international crises in Ukraine and Russia as well as in the Middle East may also be curbing the economic outlook. In contrast to consumers, German companies currently view the economic outlook somewhat more optimistically again, as the rise of the Ifo Business Climate Index in July of this year shows.

Income expectations continue their record-breaking run

While the economic indicator is diminishing, income expectations continue their record-breaking run. The indicator gained 1.4 points in July and now stands at 58.6 points. With that, it has once again exceeded its peak level, which it achieved last month for the first time since the reunification of Germany.

Thus, income expectations in Germany appear completely unfazed by international crises and the events concerning Greece. At least for the time being, Germany does not view them as any sort of threat to its continued financial development. Apparently, the country continues to be more focused on its exceedingly good domestic conditions. A low unemployment level that is constantly breaking new employment records is strengthening consumers' income optimism. Additionally, the good employment situation provides room for significant wage and salary increases.

In real terms, the healthy growth in income ultimately means that people also have more money in their pockets since the inflation rate continues to be low. In June, it was only 0.3 percent according to the data of the Federal Statistics Office. As a result, the official statistics for the first quarter of this year registered the highest real wage growth since these surveys began in 2008 with an increase of 2.5 percent. According to the data of the Federal Statistics Office, a major reason for this is the trend in consumer prices.

Willingness to buy: slight decline

Consumer sentiment is not benefiting from the exceedingly positive income expectations this month. For the second month in a row, the indicator declined, however, only 1.6 points. Currently, it is at 55.4 points. It is thus still slightly above the corresponding level of the previous year.

The decline in economic optimism could be a reason why consumer spending is not keeping pace with income expectations, but instead has decreased slightly. However, the fact that the level continues to remain markedly high at approximately 55 points should not be overlooked. Consumer spending is undiminished. The trend in retail sales in the first five months of the year also reflects this. According to the initial preliminary numbers, a real growth of 2.4 percent was recorded vis-à-vis the corresponding period in the previous year.

Consumer climate unchanged

Following a value of 10.1 points in July, the overall indicator is likewise forecasting 10.1 points for August 2015. Thus, the consumer climate remains unchanged for the time being.
On the one hand, current consumer trends signal that personal consumption in Germany will also be a significant pillar of the economy this year as well. On the other hand, the indicator also shows that domestic conditions are not the only factors playing a role. The international situation, crises in Europe and in the Middle East can put a damper on the domestic economy. Above all, the euro debt crisis and the future of Greece play an important role in this context.

About the study

These findings are extracts from the "GfK Consumer Climate MAXX survey," which is based on approximately 2,000 consumer interviews conducted each month on behalf of the European Commission. The report contains charts, forecasts and a detailed commentary regarding the indicators. In addition, the report includes information on proposed consumer spending in 20 different areas of the durable consumer goods, non-durable consumer goods and services markets. The GfK Consumer Climate survey has been conducted since 1980.

The consumer climate explicitly refers to all private consumer spending. However, depending on the definition, only 30 percent of private consumer spending is attributable to retail. The remainder is attributable to services, travel, rent, health services and the entire personal care segment.

GfK is predicting a rise in private consumption of 1.5 percent for 2015. Again, this does not only concern retail sales, but rather all consumer spending. Last year, GfK also forecast that private spending would increase by 1.5 percent. According to figures from the Federal Statistical Office, private spending grew by 1.2 percent in 2014.

Willingness to buy - like all the other indicators - is an indicator of sentiment. It examines whether consumers think it is currently advisable to make major purchases. Even if they answer "yes," two further requirements need to be fulfilled for a purchase to be made: Consumers must have the money that is required for such a major purchase and they must also view this acquisition as necessary. In addition, it only concerns durable consumer goods, which also require a larger budget.

The findings of the consumer climate survey are based on approximately 2,000 interviews conducted each month on a representative sample of the German population. This survey tool is subject to continuous quality controls, particularly with respect to its representativity. The fact that the results are used and recognized in the field of empirical legal research (for example, with respect to the likelihood of confusion between products) is a testament to the exceptionally high quality of this survey. This means that the results are quality approved by experts and must stand up in court.

For more information: Rolf Bürkl, Tel. +49 911 395-3056

About GfK

GfK is the trusted source of relevant market and consumer information that enables its clients to make smarter decisions. More than 13,000 market research experts combine their passion with GfK's long-standing data science experience. This allows GfK to deliver vital global insights matched with local market intelligence from more than 100 countries. By using innovative technologies and data sciences, GfK turns big data into smart data, enabling its clients to improve their competitive edge and enrich consumers' experiences and choices.

For more information, please visit www.gfk.com. or follow GfK on Twitter: www.twitter.com/gfk_en

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