German consumer morale drops to lowest in over a year

German consumer morale dropped for the fourth month running to its lowest level in more than a year as shoppers become increasingly wary of the effect the euro zone debt crisis is having on Europe's largest economy. Market research group GfK said on Friday its forward-looking consumer sentiment indicator, based on a survey of around 2,000 Germans, eased to 5.6 heading into January from a downwardly revised 5.8 in December.
That was below the consensus in a Reuters poll of 27 economists for a reading unchanged from December's originally reported 5.9. Germany's economy weathered the three-year euro zone debt crisis well until it slowed in the third quarter of the year. It is now expected to contract in the fourth quarter before rebounding somewhat early next year.
On expectations of a slow winter half of the year, the government may, however, cut its growth forecast for next year from its current 1 percent and the Bundesbank earlier this month slashed its own estimate to a meagre 0.4 expansion. Economists expect no recession - two consecutive quarters of contraction - and Ifo research institute, which also cut its growth forecast, said it did so because the slowdown occurred later than initially expected, but it would be short-lived.
As exports to key markets have flagged throughout the crisis, Germany has looked to markets outside Europe - where it sells about 60 percent of its exports - and economists have counted on private consumption to make up the shortfall. Ifo's leading index, which points to developments up to six months in the future, showed earlier this week that business morale climbed a second month in a row and that companies expect their prospects to improve again early next year.
The GfK data showed German consumers' willingness to make purchases plummeted to the lowest since May 2010 and their expectations for economic development also fell. But consumers' expectations for future earnings improved again after dropping the previous month. While consumers do not see wages rising strongly, they do expect them to outpace inflation, which could help return to spending next year.
Low interest rates are also encouraging Germans to spend their money rather than save as they traditionally tend to do. "The German consumers continue to be uneasy," GfK said in a statement. "Especially the debt crisis is leading to a slight decline in economic expectations in December." GfK said consumers now expected the German economy to go through a weak phase in coming months. But Germany's retail association HDE said the poll was no warning sign and demand remained at a good level.