GfK’s consumer sentiment index was at 5.5 points, unchanged from last month’s revised reading, Germany’s largest market researcher said. The survey was completed before the government reached a compromise on tax cuts with the opposition on December 15. Components measuring spending and income expectations fell.
“A basic reason for the renewed deterioration could lie in the fact that the mediation committee hadn’t decided whether the tax reform would be brought forward by the time the survey was completed,” GfK said. The compromise “improves the chance things will slowly improve again after a month of standstill”.
German Chancellor Gerhard Schroeder this month bowed to opposition demands and agreed to slash his proposed tax cuts for next year in half. Tax cuts worth 8.9 billion will be brought forward by one year to 2004, instead of the 15.6bn announced in June.
German shoppers, whose spending accounts for more than half the economy, are so far showing little inclination to spend more and spur growth next year. Retailers this month said sales in November and December probably dropped as much as 4% from the same period last year.
Falling consumer spending has left Germany’s economic recovery dependent on export growth. In the US, by contrast, consumers have propelled a faster pace of expansion. US consumer confidence may have held close to a 14-month high in December, economists said.
Consumer confidence, which has risen in the past eight months, may pick up again next year when shoppers see the effect of the tax cuts on their salaries, according to the GfK.
“I don’t expect a strong increase, but perhaps a stable, slightly rising development” next year, said GfK economist Rolf Buerkl.
Consumer spending may be helped next year by a global economic recovery that spurs growth at German manufacturers.