German consumer enthusiasm slightly dampened

Strong consumer optimism was slightly dampened in midsummer. Despite the reached agreement in the debt controversy in Greece, the downward trend in the economy has been confirmed with the third decline in a row. In its wake, willingness to buy as well and income expectations also experienced a loss. Additionally, the consumer climate suffered from a slight increase in savings trends this month.

The downward trend in economic expectations appears to have continued. In August, the indicator lost ground for the third time in a row. However, the decrease of 1.8 points is relatively moderate. Thus, the economic indicator is currently at 16.6 points which is still six points more than the previous year.

Despite the downward trend, consumers continue to expect the German economy to grow this year. The recently published, first preliminary figures for the Gross Domestic Product (GDP) in the second quarter confirm this. According to preliminary data from the Federal Statistical Office, the GDP rose by 0.4% from April to June in comparison to the previous period. The increase was 0.3% in the first quarter. In addition to private consumer spending, strong exports in particular were responsible for the positive development in the spring. After the disappointing data from the Chinese economy, according to which the economic growth begins to noticeably weaken there, it remains to be seen if the robust export growth in Germany will continue in the coming months.

In the wake of economic expectations, income expectations must also accept losses. After a new record high was recorded since the reunification of Germany in the previous month, the indicator lost 5.1 points in August and now stands at 53.5 points. Despite the losses, the indicator level is still very high. Also in comparison to the previous year, there is still a small gain.

Indeed, the income mood has lost some of its euphoria, but consumers clearly continue to assume that their personal financial situation will further improve. The main reason for this optimism is a very robust employment situation which also provides room for considerable income gains for workers. Additionally, income gains will, in real terms, contribute to consumers having more money in their wallets. Following the agreement with Iran regarding the peaceful use of nuclear energy, the sanctions are now gradually being lifted. The country will go back to being a major supplier of crude oil. It is entirely possible that the already moderate crude oil prices will further fall in the coming months. In recent weeks, energy prices have noticeably declined again. Primarily, fuel and heating oil prices, which are significantly lower than in the previous year, are responsible for the very low 0.2% inflation rate in July.

Like the economic expectations, the willingness to buy declines for the third time in a row. In the past three months, the indicator lost just over 10 points. Currently, this amounts to a drop of 3.4 points. However with 52 points, the willingness to buy is still at a very high level and is still slightly above its previous year's figure.

Finally, consumer enthusiasm is increasingly stronger in retail. After the first preliminary figures from the Federal Statistics Office, retail sales in June in real terms were 5.1% higher than in June 2014. For the entire first half of 2015, the German retail sector resulted in an increase of 2.5% in real terms and 2.4% in nominal terms. The retail sector, which accounts for about one third of private consumption, should make an important contribution to the expected consumer economy.

Following a value of 10.1 points in August, the overall indicator is forecasting 9.9 points for September 2015. Thereby, the consumer climate must accept a loss.
Despite the decline, it cannot be said that the economic motor will stutter or even stall. As before, the indicator level is high, suggesting that private consumption can fulfil its ascribed role as an important pillar of economic development this year.

Since it can be assumed that conditions for a good consumer economy in Germany will remain favourable in the coming months, such as employment, income and inflation, there is a good chance that the consumer climate will stabilise again. Possible risks and burdens first and foremost are justified in the unstable international situation, especially in the Far and Middle East.