German consumer optimism improved distinctly in April. The overall index is forecasting 9.7 points for May, up from 9.4 points in April. Growth is being observed for both economic and income expectations as well as propensity to buy.
Consumers are clearly assuming that the German economy will regain some momentum in the coming months. Economic expectation rose accordingly in April. Income expectation and propensity to buy have both made noticeable gains, once again improving their already very good level, GfK market researchers said in a report.
After the losses of the previous month, economic expectation once again increased significantly in April. The indicator rose by 5.8 points to reach a value of 6.3. Economic sentiment has thus stabilized at a positive level, i.e. above its long-term average of 0 points. Consumers believe that the German economy will continue to grow in the coming months. However, this upturn is expected to be moderate. Leading economic research institutes made the same predictions in their recently published joint forecast. According to this report, gross domestic product is anticipated to rise by 1.6% this year, down from the 1.7% rise of the previous year. For 2017, the institutes are currently forecasting economic growth of 1.5%.
In particular, geopolitical uncertainty as well as economic weakness in a number of emerging countries currently seem to be the most important obstacles to a stronger recovery by the German economy. Above all, investments by businesses are significantly lower than expected given the extremely favorable financing conditions.
Income Expectations
The income expectations of German consumers have also improved significantly. After gaining 7 points, the indicator has now reached 57.5 points. The last time a higher figure was recorded was nine months ago, in July 2015, when the indicator stood at 58.6 points.
Reasons for this are most likely the revived economic outlook as well as the very good employment market. As a consequence of the consistently high demand for labor, the round of wage negotiations which recently began will lead to a welcome growth in income for a considerable portion of workers. In addition, given the persistently low energy prices, inflation will remain very moderate this year, which means that people will also have significantly more money in their pockets in real terms.
Lastly, pensioners, too, can look forward to a significant increase in their income this year. In accordance with the recent measure adopted by the German government, as of July 1 of this year, the statutory pension will be raised by 4.25% in the west and by a staggering 5.95% in the east.
