Thursday, March 26, 2015

Binge shopping in Germany?

Binge shopping? German consumers have become real optimists and any worries about the current Greek crisis were clearly outweighed by low inflation and the strong labour market. German consumer confidence continued its recent upward trend. The GfK index increased to 10.0, from 9.7 last month, and is now at its highest level since October 2001. Interestingly, the willingness to buy increased to the highest level since November 2006. Over the last months, Germans have really started to spend it. Retail sales have seen an unprecedented uplift, increasing by a total of almost 6% since September last year; by far the best 4-months-performance ever. This is not a debt-driven shopping palooza but rather an indulgence-and-there-is-no-alternative consumption boom. On the back of the strong labour market, wage increases, low inflation and low interest rates, private consumption has become an important growth driver. Looking ahead, the factors behind consumption growth last year should remain intact this year. Given that Germans’ willingness to save has dropped to all-time-low, it seems that the ECB’s low interest rate has also reached German consumers. Only time can tell whether latest signs of de-saving are only a temporary phenomenon driven by low interest rates or a more structural and cultural shift. Fact is that households’ savings rate has dropped to the lowest level since 2001. All in all, even if we don’t expect excessive binge shopping, today’s consumer confidence indicator confirms our view that private consumption should be an even more important growth driver this year.

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