REFILE-UPDATE 1-German consumer sentiment brightest in more than 5-1/2 years

Tue Apr 30, 2013 6:08am EDT

(Fixes typo in paragraph 6)

* Germans expect wages to rise, are more willing to spend

* Propensity to save at historic low after Cyprus deal- GfK

* Unemployment still near post-reunification lows

By Annika Breidthardt

BERLIN, April 30 (Reuters) - German consumers were more upbeat going into May than at any point in the past 5-1/2 years as a robust jobs market and expectations of wage rises made them more likely to spend, a trend sure to be welcomed by struggling euro zone partners.

Germany, Europe's largest economy, has warded off the three-year debt crisis better than its peers, thanks in part to the strong labour market, and data released on Tuesday showed the unemployment rate stayed near re-unification lows in April.

As exports - the traditional backbone of the German economy - and investments weaken, all eyes are on consumers to boost growth. Calls from elsewhere in the bloc have grown louder for Germany to end its wage restraint and to encourage consumers to spend on foreign goods and help the euro zone.

"Consumption in Germany stands on a firm footing, underlined by the GfK consumer climate data," said Andreas Scheuerle at Dekabank. "A stable labour market, rising wages and a falling inflation rate are allowing people to spend more again in 2013."

GfK market research group said its forward-looking consumer sentiment indicator, based on a survey of around 2,000 Germans, rose to 6.2 going into May, up from a revised 6.0 in April.

As long as consumers remain confident about the economy, it is unlikely to become a hot topic in the country's election campaign, though any worsening could become a headache for Chancellor Angela Merkel seeking a third term in September.

Consumers in the GfK survey did turn more pessimistic about the overall economic outlook after three months of improvements, in line with recent news from retailers.

German DIY retailer Praktiker said earlier this month it expected the coming months to make up for the downturn experienced due to harsh winter weather.

German fashion retailer Tom Tailor put the blame for a 9 percent fall in first-quarter group sales squarely on the long winter.

COLD WEATHER

Retail sales, albeit a notoriously volatile indicator, fell for the second month running in March, confounding expectations for a rise, as the unusually cold weather discouraged customers from spending on spring fashion, data showed.

"The news that the euro zone will remain in recession again this year is clearly curbing economic optimism in Germany as well," GfK's Rolf Buerkl said.

"Increasingly, consumers seem to be under the impression that the moderate recovery forecast for the German economy this year will tend to be rather sluggish, if it materialises at all," he said.

The euro zone is facing a difficult road out of recession and has seen a souring of the mood among companies and consumers since March, with morale in the 17-country bloc slipping 1.5 percentage points in March.

The German government now expects growth this year of 0.5 percent and 1.6 percent in 2014, as even Europe's largest economy has trouble moving away from a contraction in the fourth quarter of 2012.

GfK said the rise in its consumer sentiment index was also due to Germans losing confidence that their bank deposits were safe following a bailout for Cyprus which entailed losses for more affluent savers.

Germans' propensity to save, for which GfK provides no individual reading, fell to a historic low, the research group said.

"The mandatory levy in Cyprus has therefore also shattered the trust of German savers in the safety of their deposits," GfK's Buerkl said.

Policymakers agreed a 10 billion euro ($13 billion) aid package for Cyprus last month. Depositors over 100,000 euros of some Cypriot banks will contribute additional funds, raising fears of similar action in future among savers in other countries.

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($1 = 0.7634 euros) (Reporting by Annika Breidthardt; editing by Ron Askew and Gareth Jones)