German Consumer Confidence Declines as Prices Rise

The GfK Consumer Confidence Survey for June came in at 4.9, lower than analysts’ estimate of 5.7. The May released number was revised lower to 5.6 from the previous 5.9. Gasoline prices constantly hitting new record highs and further looming price increases are causing German consumers to worry about their purchasing power. This has led to income expectations being assessed less positively than in the prior month. Price increase expectations also meant that the propensity to buy fell sharply in May. Concerns about price stability and uncertainty resulting from the crisis in the financial markets and the slowing U.S. economy are currently fueling economic fear amongst German consumers. This has resulted in the economic downturn becoming somewhat more pronounced than at the beginning of the year. While the second release of the German GDP came in unrevised at 1.5%, for the 1st quarter of 2008. The release number for the 4th quarter of 2007 was 0.3%. The big gainers were the construction industry, which gained 4.5%, and investment in machinery and equipment which rose by almost 4%. The GDP number reveals a sluggish economy when it comes to Household Spending, which grew by only 0.3%. The strong Euro and the high rate of inflation continue to affect the consumer’s mood. This is seen both in the GDP release, which shows a very small rise in Household Spending and furthermore it is seen in the Consumer Climate Indicator. The Strong Euro is also putting it’s signature in the GDP numbers, where exports increased by 2.4%, but Imports grew even faster at 3.5%.

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