July 26, 2018 / 6:00 AM / 22 days ago

German consumer morale slips heading into August

BERLIN, July 26 (Reuters) - German consumer sentiment dipped heading into August, market research group GfK said on Thursday, as fears that a trade conflict between Europe, the United States and China could hurt Europe’s largest economy.

Private consumption has become the main source of economic expansion in Germany in recent years, supported by record-high employment, increased job security, above-inflation pay hikes and low borrowing costs.

The consumer sentiment indicator, published by the GfK institute and based on a survey of around 2,000 Germans, fell to 10.6 going into August from 10.7 a month earlier. Analysts polled by Reuters had forecast the index would stay at 10.7.

“Among consumers, the impression is growing ever stronger that the international crisis will cause the German economy to slow down,” Rolf Buerkl, a researcher for GfK, said in a statement.

An economic expectations index dropped 7.6 points to 15.7 points, the lowest in almost a year and a half.

U.S. President Donald Trump has repeatedly called the European Union a trade foe. The United States has imposed tariffs on EU steel and aluminium and is threatening to impose duties on cars, a particularly serious threat for Germany, Europe’s biggest exporter of cars.

“Alongside Germany, other major export nations like China are also involved, so this is likely to cast a shadow over global economic prospects,” Buerkl said.

Sub-indices measuring consumer propensity to buy and income expectations both dropped by just 0.1 point with propensity to buy at 56.2 points and income expectations at 57.5 points, supported by a stable job market and a low interest rate.

“Despite the uncertain times in terms of world politics, German citizens are still keen to keep on buying,” Buerkl said.

But a further escalation in the trade conflict between the United States, China and the EU still poses the biggest risk for the German economy, Buerkl said.

“If this were to have a significant adverse affect on export performance, then the fear of job losses in export-oriented industries and their suppliers would presumably rise,” he said. “This would not be without its consequences for consumption in Germany.”

AUG 18 JULY 18 AUG 17 Consumer climate 10.6 10.7 10.8 Consumer climate components JULY 18 JUNE 18 JULY 17 - willingness to buy 56.2 56.3 54.8 - income expectations 57.5 57.6 60.9 - business cycle expectations 15.7 23.3 44.6

NOTE - The consumer climate indicator forecasts the development of real private consumption in the following month.

An indicator reading above zero signals year-on-year growth in private consumption. A value below zero indicates a drop in comparison with the same period a year ago.

According to GfK, a one-point change in the indicator corresponds to a year-on-year change of 0.1 percent in private consumption.

The “willingness to buy” indicator represents the balance between positive and negative responses to the question: “Do you think now is a good time to buy major items?”

The income expectations sub-index reflects expectations about the development of household finances in the coming 12 months.

The additional business cycle expectations index reflects the assessment of those questioned of the general economic situation in the next 12 months.

Reporting by Riham Alkoussa, editing by Larry King

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