German consumers ready to spend ahead of VAT hike

BERLIN - German consumer sentiment is poised to edge up to its most positive level in almost five years in September, a survey showed on Tuesday, eclipsing a dip in household confidence in Italy.

By (Reuters)

Published: Tue 29 Aug 2006, 7:06 PM

Last updated: Sat 4 Apr 2015, 1:04 PM

Germany’s GfK market research group said its forward-looking consumer sentiment indicator, based on a monthly survey of 2,000 Germans, is set to rise to 8.6 in September, the highest since November 2001’s 9.6, from a downwardly-revised 8.5 in August.

The GfK survey showed a strong reading for consumers’ willingness to buy but a deterioration in optimism on the economic outlook for the third month running as a planned rise in value added tax (VAT) at the beginning of next year looms.

“The VAT rise is fuelling the consumer climate at the moment,” said Bayerische Landesbank economist Manfred Kurz. “The more people buy in the second half of 2006, the more cautious they’ll be in the first half of 2007.”

The GfK reading pipped the mid-range forecast in a Reuters poll of analysts for the indicator to slip to 8.5 from an originally reported August figure of 8.6 ECONDE.

The upbeat German reading contrasted with a dip in Italy’s consumer confidence index as Italians began to worry about a rise in prices.

ISAE, an economic research institute overseen by the Italian Treasury, said the euphoria of Italy’s World Cup soccer victory that had boosted confidence in July had begun to dissipate. The August confidence index slipped to 108 from 108.7 in July.

In Germany, Europe’s largest economy, the GfK report pointed to waning confidence about the economic outlook as the VAT hike -- a three percentage point rise to 19 percent -- nears.

“The key indicators of consumer mood suggest sentiment will scarcely improve this year,” GfK economist Rolf Buerkl said.

“To be sure, the propensity to spend remains high, but positive sentiment about the economic outlook is increasingly diminishing,” he added.

Jobs factor

The negative impact of the VAT increase could be eased if Germany’s economic recovery generates more jobs.

Germany’s economy grew by 0.9 percent in the second quarter, its best performance in more than five years, leading economists to forecast growth of 2 percent or more this year.

“If the economy continues to grow and consumers reckon that their jobs are safe and that their incomes are going to improve a bit, then the higher VAT increase at the start of 2007 will not lead to a collapse in consumer spending,” said Kurz.

German unemployment figures due on Thursday are set to show seasonally adjusted joblessness falling by 20,000 in August, a Reuters poll showed.

In neighouring France, Finance Minister Thierry Breton was upbeat about the unemployment outlook for his country. France is also due to report July jobless on Thursday.

“The figures which will be announced on Thursday morning, I expect they will be good, very good,” he told French RMC radio.

The jobless rate in France, the euro zone’s second biggest economy, fell in June to 9 percent, its lowest in four years. Germany, France and Italy together account for about three quarters of total euro zone economic output.

In Spain, calendar-adjusted retail sales rose 1.2 percent year-on-year in July, up from 0.5 percent in June.

“With this data from the third quarter you see a slight acceleration in demand, and -- speaking cautiously because this is a volatile indicator -- you can imagine the Spanish economy will keep up a rate of growth close to 3.5 percent until the end of the year,” said Citigroup strategist Jose Luis Martinez.

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