The first survey of the consumer mood after the German general election delivered exceedingly relaxed results. The slight increase in economic expectations suggests that the German economy will be able to recover in the coming months, albeit at a very slow rate. Willingness to buy once again maintained the high level of the previous month and only fell slightly. Despite a decrease, income expectations also remained optimistic in October.
Economic expectations: minimal improvement
Following a considerable increase in September, economic expectations once again increased this month. However, at 0.6 points, the rise was very modest. The indicator is currently at 11.3 points and therefore has clearly cemented its position in the positive figures and above the long-term aver-age of zero points.
Consumers are expecting a continued stabilization of the German economy and that the upward trend will even accelerate in the coming months. Following a rather weak 2013 with growth of +0.4 percent, leading economic research institutions are predicting +1.8 percent for 2014 in their latest autumn forecast. However, in order for this to be achieved, it is necessary that companies in Germany considerably increase their investment activity, which has been somewhat sluggish up to now. This assessment is justified given the continued favorable financial conditions as well as the fact that the eurozone is also gradually coming out of recession and the global economy is picking up further. At present, German companies are slightly less optimistic about the ongoing business prospects than they were in the previous month. Following five consecutive increases, the Ifo Business Climate Index dropped slightly in October but remains at a high level.
Income expectations: slight drop
The income expectations of German consumers fell for the third month in a row. However, the decline of one point is only small, compared with the -3.5 points recorded in the previous month. Despite this, income expecta-tions are still at an extremely high level of 32.7 points.
This is a clear indication that Germans are still counting on positive developments in their income situation. The steady rise in employment and emerging economic upswing provide the ideal conditions for expecting increase in wages and salaries to continue to greater than the predicted inflation rate of just under two percent. In their autumn reports, institutions are therefore predicting that net wages and salaries will rise by more than 3 percent in the coming year. This would mean that employees see real rises in their income.
The current slight weakening in the income outlook is presumably attributable to perceived inflation again rising a little. For many consumers, the increase in food prices results in reduced purchasing power and consequently their optimism is slightly more moderate.
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