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German consumer confidence steadied going into next month as households' relief at falling inflation rates offset concerns that a recession may be looming, the GfK market research group said on Tuesday. The forward-looking GfK consumer sentiment indicator, based on a survey of some 2,000 Germans, rose to 1.9 for November from 1.8 for October.
A Reuters poll of 30 economists had pointed to a November reading of 1.5. The survey was conducted from September 29 to October 11 - a period marked by sliding stock markets and scrambling by governments in Europe and the United States to produce rescue packages for their banks.
"Consumers have kept a level head amid the panic at developments on the international financial markets, and this is particularly true of their income expectations," GfK economist Rolf Buerkl said in a statement. Official data on Tuesday showed the savings rate in Germany hit its highest level in 14 years during the first half of 2008, with 11.3 percent of disposable income being set aside.
Buerkl noted that at the time GfK conducted the survey, the government had yet to finalise its bank rescue package, which aimed to restore confidence in financial markets. It remained to be seen whether the package would affect consumer morale.
"With falling rates of inflation, consumer purchasing power is in less danger of shrinking and income expectations are even increasing somewhat," he added. Holger Sandte, an economist at WestLB, said there was little danger of consumer spending "dropping off a cliff."
"That's a pretty good thing in a downturn. If inflation continues to slow, then the consumer climate may improve a bit more. Overall, though, the economic outlook is pretty bad." Germany's annual inflation rate cooled to 2.9 percent in September and a Reuters poll of economists pointed to a further slowdown to 2.4 percent in October. German households had held down their spending earlier in the year as prices rose.
Despite the financial crisis, Swedish fashion giant Hennes & Mauritz expects German same-store sales to grow this year at a single-digit percentage rate, the company's Germany chief said last week. A GfK index on income expectations rose to -12.9 in October from -14.1 in September. The component indices lag the headline indicator by one month.
However, a 'willingness to buy' index fell to -18.2 from -12.8 in September. An economic expectations index dropped to -27.5 from -15.7, hitting its lowest level since May 2003. "The turbulence on the stock markets is fuelling fears of a recession," Buerkl said.
Other recent economic indicators have also pointed to a sharp slowdown, or even a recession in Germany. German business expectations plunged this month to their lowest level since the country was unified in 1990, the Ifo research institute's business climate index showed on Monday. Surveys released on Friday showed Germany's manufacturing sector contracted in October at its fastest rate in over seven years, suffering from a sharp decline in new business that also hit the services industry.

Copyright Reuters, 2008

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