German consumer confidence managed to remain unchanged for the third month in May despite the less favorable economic conditions prevailing and gloomy predictions, a closely watched survey revealed Monday.

The overall consumer confidence index is forecasting a value of 2.5 points for May, unchanged from a revised 2.5 points reported in April, market research group GfK said. Economists were expecting a reading of 2.3 for May.

The Nuremberg-based GfK group conducts the GfK consumer climate MAXX survey each month on behalf of the EU Commission. The survey is based on around 2,000 consumer interviews.

The consumer confidence index of GfK corresponds to the coming month, while its three sub-indices namely economic expectations, income expectations and propensity to buy refer to April.

Factors which increase purchasing power, such as low inflation, lower energy prices and higher pensions, along with some isolated signs signaling a trend reversal by the end of the year, are evidently ensuring that April 2009 has seen a rise in both economic and income expectations, GfK said in a report.

It said forecasts released by some of the leading financial institutes that the German economy will contract by 6% in 2009 could further challenge the consumer climate.

However, the firm said the greatest hazard jeopardizing further development of the consumer climate comes from the job market. If the available possibilities such as short-time work, intended to head off redundancies should be exhausted by companies with no economic recovery yet on the horizon, there are bound to be further redundancies and this would have a severe adverse effect on the job market and with it, the consumer climate.

According to the data released by the Federal Labor Agency in late March, seasonally adjusted unemployed persons in the largest Eurozone economy rose 69,000 in March, bigger than 50,000 increase in February.

After dropping massively in March, the indicator of economic expectations once again climbed 1.6 points in April to stand at its current level of minus 31.2 points. The GfK said the fall in the indicator that started in the middle of 2007 seems to be gradually coming to an end. This view is based on the expectations that some degree of economic stabilization is possible by the end of 2009.

Similarly, income expectations rose 3.4 points to reach minus 8 points. The GfK said the general assessment regarding the income expectations for the full year is positive given the 12.5 points increase since it reached its lowest point in January.

According to the market research group, one of the main reasons for this development is the general price stability prevailing in Germany. In March, the rate of inflation was just 0.5%. In addition, it is now clear that pensioners can definitely look forward to a pension increase. Starting from July 1, pensioners living in eastern Germany will receive a 3.4% rise and those in western Germany will be receiving 2.4% more.

Further, the survey revealed that the propensity to buy indicator maintained its good level in April this year, although it has dropped 1.5 points to the current level of 12.4. The indicator rose 17 points from the level seen in the same month of the previous year.

In tandem with moderate price development, the financial incentives contained in economic package II are ensuring that consumer propensity to buy remains constant, GfK said in its report.

Above all, the scrappage allowance for cars, which has been further enhanced by a series of special offers from manufacturers, is keeping consumer sentiment high. The survey found other industries are also adopting this form of buying incentives for their products, raising scopes for further price reductions.

Latest set of forecasts from the International Monetary Fund showed that German economy would contract 5.6% in 2009 and 1% in 2010.

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