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German Consumer Confidence Remains High

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Consumer sentiment has held steady in Germany this month, the Gfk Consumer Confidence Survey has come in unchanged and in line with expectations at a reading of 8.5 for the month of June.

This is the fourth month in a row that the Gfk reading has remained at this elevated positive reading and bodes well for the German economy as individuals indicate that they are prepared to spend more money than usual over the next 12 months within the domestic economy. The Nuremburg based marketing agency, Gfk, is projecting that consumers will spend approximately 1.5% more in 2014 than in 2013. This is partly because record low interest rates make saving unattractive and partly due to a positive outlook towards the near term prospects of the German economy.

Germany is easily outperforming it’s Eurozone peers with regards to economic progress, incomes are steadily rising and unemployment is comparatively low. Consumers therefore have disposable income and are using this to stimulate growth, and this is working because consumer spending represents almost 60% of the German economy.

An impending cut to Euro interest rates by the European Central Bank next week will likely compel a further increase in German consumer spending. This obviously holds the risk that is contributes to an overheating of the domestic German economy, retail sales and particularly the consumer price index will need to be monitored for signs of this occurring over the coming months. German authorities will in this case have the option to step in and cool spending through the tightening up of domestic sales taxes.

A move such as this may however be rendered unnecessary should the Ukrainian situation continue to escalate, this will drive up fuel and energy prices, particularly in Germany, which will soak up some of the excess cash from the German consumer economy.

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