German consumer morale holds steady heading into October

BERLIN, Sept 25 Tue Sep 25, 2012 2:00am EDT

BERLIN, Sept 25 (Reuters) - Consumer morale in Germany held steady heading into October as low interest rates encouraged people to keep spending rather than put money in the bank for meagre returns, a survey by the GfK market research group showed on Tuesday.

The forward-looking consumer sentiment indicator, based on a survey of around 2,000 Germans, stood at 5.9 in October, unchanged from September and matching the consensus forecast in a Reuters poll of 24 economists.

"Consumers are still tending to invest their money in higher value purchases, such as real estate, rather than saving it in the bank. This is verified by the distinctly low propensity to save," GfK said in a statement.

October's reading supports expectations that domestic demand will prop up the traditionally export-driven German economy as demand in the euro zone, where many states are implementing tough austerity measures, slackens and the broader global economic environment weakens.

GfK reiterated its prediction that private consumption, which makes up around 60 percent of German gross domestic product (GDP), would increase by about 1 percent in real terms this year.

"Consumption therefore continues to truly fulfil its role as a reliable supporting pillar for the economy. Taking into consideration the crisis, 2012 is set to be a pleasing consumption year," GfK said in a statement.

The relatively stable labour market and good wage deals should buoy consumers' willingness to buy goods, GfK said.

Germany's unemployment rate stands at just 6.8 percent, close to its lowest level since reunification more than two decades ago, and workers in the chemical and engineering sectors are taking home more pay after successful wage negotiations.

But Germans have become more pessimistic about their future financial prospects after joblessness rose for a fifth month running in August and annual inflation accelerated to 2.1 percent on the back of higher fuel and heating oil prices.

"Consumers therefore fear their purchasing power will suffer," GfK said.

Retail sales fell in July as consumers feeling the squeeze from higher fuel prices cut back on other items. The euro zone crisis has also taken its toll on retailers in recent months, with Puma saying it would reduce sponsorships and the number of products it sells and department store chain Karstadt planning job cuts.

The German economy expanded 0.5 percent in the first three months of the year but slowed to a mere 0.3 percent in the second quarter. Many economists predict a contraction for the third and possibly fourth quarters of the year.

Tuesday's survey showed consumers did not become more worried in September about a recession, however, as their economic expectations rose slightly, though they remained at a low level overall.

In a report published on Monday the Bundesbank central bank said the economy should continue its overall upward trend at the start of the third quarter but it added that signs of a slowdown were emerging.

Recent data from Europe's economic powerhouse has been mixed - while business sentiment has fallen and the private sector has contracted, analyst and investor sentiment has picked up and exports, imports, orders and industry output have all risen. (Editing by Hugh Lawson)

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