German consumer morale at highest level since Oct 2001

[BERLIN] The mood among German consumers rose to its highest level in almost 16 years heading into July, a survey showed on Thursday, supporting expectations that private consumption will contribute strongly to growth this year.

The consumer sentiment indicator, published by the Nuremberg-based GfK institute and based on a survey of around 2,000 Germans, rose to 10.6 going into July, the highest level since October 2001.

A Reuters poll had expected an unchanged reading of 10.4, from last month, also a near 16-year high.

GfK linked the high reading to income expectations reaching their highest level since reunification in 1990 as Germany's robust labour market continues to fuel consumption and growth.

"The positive outlook for income growth among consumers is primarily based on the excellent condition of the labor market," GfK researcher Rolf Buerkl said in a statement. "Employment is still growing noticeably. The number of people in employment is expected to rise by more than half a million this year." Consumers also held very positive expectations of the economy, with a sub-index measuring their economic outlook reaching its highest level in almost three years.

"Consumers believe that the boom in Germany is gaining traction despite global economic risks," Mr Buerkl said. "A weak euro, low oil prices and the European Central Bank's expansive monetary policy all ensure that the economic engine continues to gain pace." He added that consumers appear unfazed by risks to the economy linked to possible US trade restrictions and the beginning of divorce talks between Britain and the European Union.

The Ifo economic institute said last week that vibrant domestic demand and strong export growth fueled by a recovery in the euro zone will boost growth in Germany this year and next, raising its 2017 growth forecast for Europe's largest economy.

Ifo raised its growth forecast to 1.8 per cent from 1.5 per cent, adding that risks linked to Brexit negotiations and possible protectionist policies by US President Donald Trump have receded since the start of the year.

"An increasingly stable labour market with bright prospects for employment is the primary reason for the very good tendency to buy," said Mr Buerkl. "In addition, little fear of losing employment makes for a more secure basis to plan for the future."

REUTERS