A German consumer confidence index for October rose to its highest level in six years as sentiment buoyed by improving economic conditions in Europe’s largest-economy, is expected to drive up consumer spending in the month.
The GfK market research group’s consumer climate report published on Wednesday showed that the forward-looking index, which measures the level of consumer confidence in economic activity, nudged up to 7.1 for October, against analysts' predictions that the index would remain steady at September’s upwardly revised 7.0.
“German consumers are expecting the economy to gain momentum again in the coming months. This is reflected in the increase in economic expectations, which are on a clear upward trend,” the survey said.
The report, which is compiled from a survey of about 2,000 consumers and asks respondents to rate the relative level of past and future economic conditions, showed an uptick in consumers' willingness to spend in September and October, despite a fall in income expectations. Record low interest rates also encouraged consumers to spend more.
“Germans' desire to shop also appears to be unbroken. In fact, willingness to buy once again improved on the record value of the previous month. However, income expectations declined for the second consecutive time, but continue to be at an extremely high level,” the GfK report said.
The sub-index for consumer income expectations declined for the second-straight month by 3.5 points in September to reach 33.7 points, which is still at an “extremely high level,” the report said. However, consumers’ economic outlook improved in September, as the economic expectations indicator sub-index rose by 8.9 points, according to the report.
The survey attributed the fall in consumer optimism to considerable increases in food prices, which were up about 5 percent year-on-year in the latest reading, and over concerns that a change in political leadership could further hurt consumers' budgets.
“It cannot be ruled out that respondents were influenced by the German parliamentary election for the Bundestag, which had not yet taken place at the time of the survey. Some consumers are perhaps worried that further financial burden will be placed on them, for example, because of the euro zone crisis,” the report stated.
According to the latest estimates the German economy is expected to grow by 0.4 percent in 2013 and Markit's purchasing managers' index showed that the private sector was expanding and unemployment was dropping, but manufacturing activity fell short of expectations.
A separate survey by the Ifo Institute released earlier this week showed that business sentiment improved slightly to its highest level in 17 months in September.