German Consumer Climate Slightly Cooler

The German GfK Consumer Climate Study for July, 2011 revealed substantial declines in both income and economic expectations. The balance of opinion regarding income expectations declined 10 percentage points to 34.6% in July from 44.6% in June and the balance of opinion regarding economic expectations declined 5.7 percentage points to 44.6% in July from 50.3% in June. There was also a decline, but a smaller one of only 1 percentage point, in the balance opinion regarding the willingness to buy, which declined to 34.1% in July from 35.1% in June. As a result of these declines, GfK reduced its measure of the overall consumer climate to 5.5 points in July from 5.6 in June and is forecasting a continued decline to 5.4 in August. The GfK Consumer Climate and its components are show in the first chart.

GfK attributed the decline in the consumer climate to "the ongoing discussions about the best way to resolve Greece's debt crisis and the associated potential dangers for the single European currency" and concluded that "It therefore appears that the events surrounding the debt crisis are overshadowing the positive general condition in Germany at present." To see if this is the case, we have plotted daily German stock market prices over the past three months and the opinions of the business and financial communities regarding current conditions. Although the German stock market, which often reflects financial concerns, has recently risen, it had declined sharply in mid July, as can be seen in the second chart. Since the latest data relating to general economic conditions in Germany, such as production, employment and trade, are for the most part the month of May, we have used survey data which are more up to date to get some idea of economic conditions in July. Germany has two widely quoted surveys--the IFO survey, which includes the opinions of business men, and the ZEW survey, which includes the opinions of institutional investors and financial analysts. In July the balance of optimists over pessimists among business men in the IFO survey declined to 30.4% from 34.0% in June, however, 30.4% is still near the all time high of 34.0%. The balance of opinion among the financial community rose to 90.6% in July from 87.6% in June and was only a little short of the all time high of 91.5%. The financial community tends to be more volatile in its appraisal of current conditions than the business community, as shown in the third chart, but both seem relatively satisfied with current conditions.