Winter frost for German consumers

Findings of the GfK consumer climate survey in January 2004

Nuremberg, Germany (ots) - It was an icy start to 2004 for consumers, following on from the rather frosty mood in December 2003. The decision in mid December 2003 to bring forward the tax reform evidently did not have the desired effect on consumers of clarifying their future income and contributions situation. The uncertainty resulting from the continued controversy regarding tax, social security and pension reforms impacted on the mood and consequently, all consumer climate indicators were down in January.

Following a slight recovery in the consumer mood in the second half of 2003, the consumer climate was already beginning to cool off in December. The survey carried out by GfK in January shows that the bad mood among German consumers has deteriorated further. It is in direct opposition to the optimism felt by companies (ifo) and the financial analysts (ZEW). According to the ifo business climate index and ZEW, companies and financial experts continue to be positive about the future. The recent consumer low is attributable to the unresolved political debate surrounding the tax, pensions and healthcare reforms. The consumer climate indicator, which had been rising slowly but surely since May last year, is slightly down for the first time in months.

Economic outlook: hopes proved to be unfounded

At the end of 2003/beginning of 2004, German consumers were once again pessimistic about an economic upturn, following several months of optimism. With a value of -1.6 points in December 2003, the economic outlook indicator decreased by a further 4.2 points in January to stand at -5.8. Consumers do not share the positive expectations of companies, financial and economic experts with regard to the economy. However, the current indicator value, which is again way below the long-term average value of 0, still exceeds the corresponding value at the beginning of 2003 by 23.4 points.

Despite the decision to bring forward the tax reform in mid December 2003, German consumers are still highly unsettled, as they do not know what to expect in terms of contributions and subsidies. The concrete financial effects will not show up on payslips until February or even March this year. This uncertainty is evidently leading them to lower their expectations regarding any economic upturn.

Income expectations: down again

It is exactly this situation that is impacting on consumers' income expectations, which were also lowered again at the end of 2003/beginning of 2004. 2 points down in December 2003, the indicator lost a further 6 points in January 2004 and currently stands at -14.5. It is of little consolation that this indicator value is still higher than the same period in the previous year, when it stood at -19.4 points.

The current sobering development is the manifestation of consumer irritation as to their future financial situation. Present discussions about the patient fee introduced at the beginning of January are not exactly confidence-inspiring. In the consumers' minds, the fear of potential financial burdens outweighs any possible benefits resulting from the healthcare reform. Pensioners, in particular, are worried about having to get by on less money at the beginning of this year. As of now, for example, they have to pay the full health insurance contribution and from 2004 onwards, will also have to pay the full healthcare contribution on company pensions.

Propensity to buy: still at the bottom of the pile

Consumer uncertainty in terms of their future financial development was also evident in the buying propensity indicator, which dropped by 9.5 points in January. At -41.7 points, this value is the lowest it has been since December 2002 and the gradual increase over the past year has been completely wiped out.

In addition to the factors already mentioned, consumers have also been deterred from making larger purchases by the persistently high unemployment rate in Germany.

Consumer climate: slight downward trend once again

In light of the current development in the individual consumer mood indicators, the overall consumer climate indicator is also down, if only by a little. The consumer climate indicator for February 2004 has therefore been developed downwards to 5.0 points following a revised forecast value of 5.3 points in January.

The upward trend in the consumer climate as witnessed since May last year has therefore come to a standstill, at least for the time being. The potential economic recovery in Germany still gives cause for hope, however, that optimism in the industry will influence consumer optimism. A decisive change for the better will depend on the unsettling discussions surrounding tax, pensions and healthcare insurance being resolved and a far-reaching improvement in the labour market situation.

The survey

These are the findings of the survey, "GfK-Wirtschaftsdienst Konsum- und Sparklima" (GfK financial services, consumer and savings climate), published by GfK Marktforschung. The results are based on monthly consumer interviews carried out on behalf of the EU Commission. In the first half of each month, around 2,000 representatively selected people are asked about their perceptions of the overall economic situation, their propensity to buy and their income expectations.

Income expectations

This index is based on the following question to consumers: 'How do you think the financial situation of your household will develop in the next 12 months?' (improve - stagnate - deteriorate) Economic outlook This index is based on the following question to consumers: 'How do you think the general economic situation will develop in the next 12 months?' (improve - stagnate - deteriorate)

Consumption and buying propensity

This index is based on the following question to consumers: 'Do you think it is advisable to make major purchases at the moment?' (good time - neither good nor bad time - bad time)

Consumer climate

This index is used to describe private consumption. Key factors are income expectations and buying propensity. The economic outlook has a more indirect effect on the consumer climate, generally as a result of income expectations.

The next publication date will be 25 February 2004.

The GfK Group

The GfK Group, the No. 5 market research organization worldwide, is active in five business divisions, Consumer Tracking, HealthCare, Non-Food Tracking, Media and Ad Hoc Research. In addition to 15 German subsidiaries, the company has over 120 subsidiaries and affiliates located in 50 countries. Of a current total of around 5,000 employees, approx. 1,450 are based in Germany. For further information, visit our website: www.gfk.com.

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