Article / 29 January 2014 at 8:55 GMT

German consumers in ebullient mood

Head of Macro Strategy / Saxo Bank
Denmark

• German GfK consumer confidence indicator highest since 2007
• 8.2 confidence score beats consensus by 0.6 points
• German GDP growth on target for at least 1.5% in 2014

By Mads Koefoed

Bottom line: The GfK consumer confidence indicator for February has climbed to its highest level since 2007. I expect an accelerating Germany economy to be spurred on by domestic demand this year.

GfK Consumer Confidence

Details: The GfK released its February report on consumer confidence earlier today, which not only climbed to 8.2 from an upward revised 7.7 print in January, but also beat modest consensus expectations of 7.6 by a healthy margin. Ever since the depths in September 2008 when confidence hit 1.5, confidence has been on an upward trend rising 6.7 points.

Turning to the components (which are lagged one month relative to the headline index) the economic outlook rose to 35.3 in January, the highest since mid-2011 when Germany was growing more than three percent year-on-year. The willingness to buy index rose to 50 from 46.1, the highest since before the global recession struck in 2008-09. This indicator, which attempts to measure consumers' propensity to buy larger-scale durable goods, supports my view that stronger private demand will be a more prominent driver of growth this year than has been the case in previous years. Lastly, the income expectations index rose to 46.2 from 39.5, indicating that not only are consumers willing to buy more goods, they also expect incomes to (continue to) rise robustly.

GfK components

The German economy will be helped by stronger demand from produce from other euro area countries this year, but I expect the economy to be primarily driven by stronger domestic consumer demand, which will also be supported by a resurgent housing market. Growth is expected to hit at least 1.5 percent this year from 0.4 percent in 2013; and I judge risks to this forecast to be mainly to the upside.

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