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German Consumer Confidence: What to Expect in 2017

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Consumer confidence in Germany

Consumer confidence in Germany rose more than expected in February 2017, reflecting the recent boost in its market performance (EWG) (HEDJ). In particular, the GFK Consumer Climate Index measures consumer confidence in Germany, and consumer confidence is an important driver for economic growth because it boosts consumption.

Notably, Commerzbank, the second-largest bank in Germany, raised its forecast for Germany’s GDP growth to 1.6% in 2017, exceeding its previous estimate of 1.3%.

Ralph Solveen, an economist at Commerzbank in Frankfurt, stated: “The general picture is that we’re seeing a consumption-driven upswing in Germany, which is going to stay in place as long as the ECB continues its expansionary monetary policy.”

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Consumer confidence in 2016

Germany’s consumer climate rose to 10.2 in February 2017, as compared to 9.9 in January 2017. The various reasons for the increased consumer sentiment include the following:

  • Increased household consumption stemmed from a decline in the unemployment rate, which reached its lowest level in the past two decades.
  • Increased government spending, as costs related to the provision of assistance and shelter for refugees from Syria and Iraq grew, added to overall economic activity. This government spending is expected to boost economic activity and help improve consumer sentiment.
  • A fiscal surplus of 0.6% of GDP was posted in 2016, making it the third-consecutive year for budget revenue to exceed spending.

Recently, the DAX 30 (DAX-INDEX) broke the symbolic 12,000 level, supported by increased consumer sentiment. DAX gained about 25% in 2016, and gainers in DAX included Adidas (ADDYY), Deutsche Bank (DB), Allianz (AZSEY), and BASF (BASFY).

Expectations for 2017

Consumer spending in Germany in 2017 may reduce as inflation rates are expected to rise in 2017. The consumer confidence indicator, as reported by the GFK Group, fell to 10.0 in March, as compared to 10.2 points in February. Consumer sentiment thus saw a drop in March 2017, with consumers becoming worried about global uncertainty, likely stemming from the Trump administration’s protectionist measures. Meanwhile, the expectation of future income has declined due to increasing inflation.

Continue to the next part for a closer look at the inflation trend in Germany and its impact on the market.

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