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Germany consumer sentiment set to reach 8-year high

Staff writer |
German consumer confidence is set to improve to an eight-year high at the start of the year on strong gains in economic expectations and willingness-to-buy as the current economic weakness is expected to be temporary, GfK said.

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The forward-looking consumer confidence index climbed to 9 for January, the highest since December 2006, from 8.7 in December. The index was forecast to rise marginally to 8.8 points.

Economic expectations and willingness-to-buy strengthened in December, while income expectations declined from the prior month.

Ending a downward trend lasting five months, the economic expectations index rose by 12.9 points to 14.5 in December.

There continues to be some uncertainty among German consumers largely due to the ongoing international crises in Iraq, Syria and Ukraine, the GfK noted. However, consumers expect the economy to recover relatively quickly and return to growth by spring.

A similar outlook was presented recently by the Ifo Institute. The think tank economic growth of 1.5 percent next year. German firms are also taking a more optimistic view of the future.

Income expectations declined following two consecutive increases in December. The corresponding index dropped by 7.5 points to 41 in December. The indicator is still at an extremely good level, the GfK said.

The decline was driven by the ongoing international situation rather than the framework conditions in Germany. On the domestic front, employment is rising month after month to new record highs and income of employees and pensioners are developing positively.

In contrast to the income outlook, the willingness-to-buy measure rose once again in December. After a third straight rise, the index rose by 1.6 points to 49.1. The score is just below the 50-mark, which it last exceeded in July 2014.

Propensity to consumer benefited from the major collapse in energy prices. As a result, private households have greater financial freedom for making other purchases. The propensity to save dropped to a record low boosting the spending mood.

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