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Traditionally frugal Germans fuel economy with spending spree

Monday, March 9, 2015 - 16:44

[BERLIN] Sales of new kitchens are up more than 10 per cent already this year at German kitchen maker Haecker. For those who would rather someone else did the cooking, roasted monkfish and turbot with truffles are flopping onto plates at Berlin's Michelin-starred restaurant Fischers Fritz.

A blizzard of corporate good news shows that famously frugal Germans are now snapping up soccer shirts from Adidas and electronics from retail chain Media-Saturn.

With interest rates on savings low, unemployment falling, oil prices sliding and pay rises outpacing inflation, economists say German consumers have finally woken up and are likely to keep on spending through 2015.

Markus Sander, marketing head at Haecker, a family firm with more than 1,200 employees, said Germans were now splurging on high-end kitchens - many costing more than a new car - because low interest rates made saving unattractive and loans cheap.

"Five years ago the front-page headlines were all about unemployment. But now you read about job growth everywhere so people are feeling less worried and they're spending more on durables like furniture and kitchens," he said.

At Fischers Fritz, where main courses set diners back up to 90 euros, turnover soared by 10 per cent last year. Head chef Christian Lohse said people hosting events were now ordering delicacies like trout caviar, not staples like sausage.

"Germans think in terms of security and seem to feel secure at the moment. That's really noticeable in the way they're spending - the restaurant industry is booming," he said. "People say: 'Let's just have a bigger, better party because if I can only get 0.0 or 0.1 per cent interest on my money it's not worth investing it so I might as well just spend it."

Frugality is still a prized national trait, and Germans still saved 9.2 per cent of their disposable income on average last year. But while that figure is high by global standards, it was Germany's second lowest since 2000.

There are many signs that spending could increase further still this year, welcome news to struggling countries across the eurozone who have long complained that Germans hold back the rest of the bloc's growth by buying less than they make.

German unemployment is now at 6.5 per cent, its lowest rate since reunification in 1990. German workers have secured the highest negotiated wage increases in two decades. A dramatic drop in energy prices is putting more cash in pockets too.

Household spending's contribution to growth in Europe's largest economy rose at its strongest rate in three years in 2014 and it made up more than half of Germany's national output last year. Along with resurgent investment it has eclipsed Germany's legendary exports as the main driver of growth.

"The mood among consumers is excellent at the moment - it's almost euphoric," said Rolf Buerkl, analyst at market research group GfK. His firm says Germans are more willing to buy now than at any time since a one-off blip in late 2006 ahead of a sales tax hike.

The government expects the economy to expand by 1.5 per cent this year, but others say that is an understatement. Insurer Allianz has raised its forecast to 2.1 per cent from 1.6 per cent, which would see Germany motoring ahead of the wider eurozone.

Bundesbank President Jens Weidmann has described the fall in global energy prices as a small economic stimulus package freeing up cash for consumers to spend on other items.

Last month IG Metall, Germany's biggest trade union, secured an inflation-busting 3.4 per cent wage increase that will likely benefit 3.7 million workers.

Retail sales posted their biggest monthly increase in seven years in January and industry association HDE expects them to increase for a sixth consecutive year in 2015, with 1.5 per cent growth.

"It's not just about the falling oil prices but also about the labour market situation, incomes and low interest rates - these factors will continue to have a positive effect for this year at least," said HDE managing director Stefan Genth.

Consumers are shelling out on big-ticket items such as cars, furniture and appliances like refrigerators, televisions and dishwashers. Others are treating themselves to smartphones, long-haul trips and cruises or renovating their homes.

Lawyer Volker Schmitt, 53, is one of them. He is replacing the roof of his 1930s house in eastern Berlin and turning the loft into a living room. After saving up for years, he decided it was no longer worth keeping his money in the bank.

"The interest rates on deposited money are an absolute joke. Some of them are almost negative. So the only sensible solution was to take out a loan at a low interest rate and invest it in the house," he said.

The surge in spending is likely to outlast weak oil prices due to low joblessness and expectations of bigger paychecks, said Christian Odendahl, chief economist at London's Centre for European Reform.

"Without a negative external shock, this optimism is likely to feed on itself without more restrictive monetary or fiscal policy stopping it. The result would be stronger wage growth, even more optimism, and even more consumption."

Haecker expects its kitchen sales to grow by up to 6 per cent this year. Germans, less likely to own their own homes than other Europeans and more restrained in interior design, are increasingly seeing open-plan kitchens as a status symbol and investing in wood, glass and stone designs.

"You have to ask what the alternative is - does the consumer want to save his money, invest in shares or in physical objects such as the home? At the moment, given the low interest rate, he's tending to put it into consumption," said Mr Sander.

REUTERS

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