German consumer confidence is set to remain unchanged at a 7-year high in May as concerns over the Ukraine crisis were offset by the positive developments in the economy and income expectations, a closely watched survey from the market research group GfK showed Tuesday.
The forward-looking consumer confidence index, based on survey responses of 2,000 people, came in at 8.5 in May, the same as seen in April and March. The score was the strongest since January 2007 and matched economists' expectations.
Consumers' economic expectations as well as willingness to buy weakened from March, while income expectations hit a record high.
Economic expectations dropped to 32.1 in April from 33.2 in March. The clear upward trend, which has been evident since the middle of last year, has halted in April as events in Ukraine started to have an impact.
The continued positive general conditions as well as the stable labor market and moderate inflation were overshadowed by tensions in eastern Ukraine.
German consumers fear that the annexation of Crimea by Russia and the crisis in Ukraine will weaken the domestic economic recovery. But Ifo business confidence underscored that companies are still confident about their business prospects.
Meanwhile, income expectations among consumers surged to the strongest since 1991, when the first consumer climate survey was conducted in a reunified Germany.
The indicator surged to 52.3 in April from 45.6 in the prior month. Given the extremely stable labor market situation, employees expect quite considerable salary increases this year. Moreover, slowdown in inflation boosted the purchasing power.
Following an increase of 6.6 points in March, the willingness to buy dropped to 48.6 from 55.5 a month ago. One potential reason for this decline is the improvement in the propensity to save. Despite this small setback, the upward trend is continuing, although at a slightly weaker rate.
Although the effects of Ukraine crisis on consumer sentiment remained moderate, the GfK warned that any further escalation could have a real negative impact on future consumer climate.
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