German consumer, business confidence ebbs

Tuesday August 26, 7:01 am ET By Matt Moore, AP Business Writer
German consumer, business confidence slide to 5- and 3-year lows; gov't confirms GDP pinch
FRANKFURT, Germany (AP) -- Consumer confidence in Europe's biggest economy declined for a fourth month in a row, sliding to another five-year low as lower energy prices failed to bolster Germans' likelihood of buying new goods, a report released Tuesday found.
A separate report, meanwhile, found that business executives' confidence in the German economy had also dropped to a three-year low in August, the third consecutive monthly decline.
The forward-looking GfK consumer climate forecast index dropped to 1.5 points for September from a revised 1.9 points in August. The last time it was that low was five years earlier.
"The consumer climate ... was depressed further by the very subdued economic outlook. Even significantly lower crude oil prices did nothing to brighten the consumer mood," the report said.
"Consumers are not interpreting the marked decrease in crude oil prices as an all-clear signal when it comes to purchasing power," GfK added in the report.
Ifo's Business Climate for Germany report, which surveyed 7,000 business executives across Germany, found that business confidence fell to 94.8 points in August from 97.5 points in July.
The global financial turbulence was still affecting business confidence despite the recent fall in oil prices and the euro's retreat from record highs against the dollar, said Timo Klein, an economist with Global Insight, of the latest report.
Munich-based Ifo said that manufacturing firms had seen a cooling in the business climate, as had construction and retail companies.
"The German economy is encountering an increasingly more difficult situation," Ifo said in the report.
Germany's government also confirmed that the economy shrank for the first time in nearly four years in the second quarter as consumer spending and capital investment declined.
The reports helped push the euro to a six-month low against the dollar. It fell to $1.4595 in late morning trading compared with $1.4756 the night before in New York.
The economy contracted by 0.5 percent in the April-June period compared with the previous quarter, the Federal Statistical Office said. It was the first decline since the third quarter of 2004.
The two reports provided ample proof that Germany, and its consumers, are not immune to the global economic slowdown, said Andreas Rees, an economist at UniCredit in Munich.
"The German consumer is clearly no match for the rapid slowdown of the global economy," he said.
In the report, the Nuremberg-based GfK said that consumers' propensity to buy dropped by 1.7 points to minus 27.9 points, a level last seen in mid-2005.
"High energy prices are reducing the purchasing power of consumers. With manufacturing and wholesale prices rocketing most recently, there is little hope of an easing in the price trend of other fast-moving consumer goods," the report said.
Because of that it is unlikely that Germans, even those who have received bumps in their salaries because of union wage talks, will make major purchases from cars to washing machines.
As such "real disposable income for consumption will therefore hardly see an increase this year," GfK said.
All three of GfK's subindexes, which refer to current conditions, fell in August versus July.
The index that measures economic expectations dropped to minus 21.8 points in August from minus 8 points in July. The index showing income expectations fell to minus 16.8 points in August from minus 20 points in July. The index showing consumers' consumption and propensity to buy fell to minus 27.9 points in August from minus 26.2 points in July.
http://www.gfk.com