Germans in the mood to buy – economy takes off

Germans in the mood to buy - economy takes off

The stable labor market and the recent good wage settlements have made citizens optimistic, the market research company gfk announced in nurnberg on wednesday. Overall, the consumer climate index for july climbed from 6.5 to 6.8 points, its highest level since september 2007.

But industry is also producing more again.

The ifo institute expects a significant economic upturn in the coming months. "In the spring months, the german economy has very clearly picked up speed," said ifo head of economic research kai carstensen in munich. According to the german institute for economic research (DIW), the german economy grew by 0.5 percent in the second quarter compared with the previous quarter. "Industry has already been expanding its production noticeably since february," the DIW declared.

Although the ifo institute corrected its growth forecast for 2013 slightly downward from 0.7 to 0.6 percent in view of the rather meager start to the year. But researchers expect significant growth of 1.9 percent in 2014. Germany is likely to remain europe’s economic powerhouse.

Burger confidence in the economy is on the rise, according to gfk. However, the difficult economic situation in many other countries is a cause for concern. For germany as an export nation, this means slower growth, said burkl. "This is a sluggish or bumpy recovery that is taking place here."Nevertheless, the german propensity to spend remains high. "Consumers don’t think it’s attractive at all to put money away at the moment because interest rates are historically low".

Higher wages following the latest round of collective bargaining agreements also provide planning certainty, which citizens need for major purchases, the gfk explained. The real estate business is also benefiting from particularly favorable loans and construction financing. The good mood of consumers had saved germany from worse in recent months. Private consumption in particular prevented economic output from shrinking in the first quarter. In the meantime, the industry is also back in the game. Exports in particular are driving the economy forward again, driven by growing demand from asia and the USA.

Chancellor angela merkel (CDU) believes that boosting german consumer spending is crucial to a new economic upswing. The bulk of economic growth currently depends on domestic demand: "we must do everything we can to create a reasonable consumer climate in germany," said merkel at the annual meeting of the brand association in berlin. With better domestic demand, germany is also contributing to more growth in europe, because more is being imported from eu partners.

In the spring report presented at the end of april, the leading economic research institutes still expect growth of 0.7 percent – and are thus more confident than the federal government, which assumes growth of 0.5 percent for the current year. Gfk expects further stimulus from reconstruction and repairs following the floods in parts of germany.

Billions from insurance and flood relief funds have acted like a small stimulus package, burkl said. In any case, the damage was not allowed to slow down the economy. The ifo institute assumes that the consequences will be regionally limited and that larger companies will hardly be affected.

Outside germany, on the other hand, things look less rosy. According to the ifo, the euro zone will remain in recession this year and shrink by 0.6 percent, but in 2014 it was allowed to rise by 0.7 percent – thanks to growth in germany. Without the federal republic, the eurozone economy would only grow by 0.2 percent in 2014. "It’s not a recovery yet, but it’s not a recession anymore either," said carstensen.


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