German consumer morale held steady going into June, countering a run of negative data and shoring up hopes that private consumption can support Europe's largest economy through any faltering export demand and renewed turbulence in the euro zone.
The forward-looking consumer sentiment indicator compiled by market research group GfK stood at 5.7 heading into June after May's reading was upwardly revised also to 5.7 from 5.6.Business cycle expectations in May jumped to 19.6 from 8.5 in the previous month, confounding a slew of bad news from the euro zone as the debt crisis escalates and a potential Greek exit from the single currency is openly discussed.
"Consumers seem unfazed by the increased turbulence in the euro zone recently. The elections in France and Greece, which above all have unsettled the markets, have not damaged business cycle sentiment," GfK said in a statement.
Germany has enjoyed strong economic growth throughout much of the sovereign debt crisis. In the first quarter of 2012 the economy grew by 0.5 per cent, comfortably shaking off recession fears after it shrank by 0.2 per cent at the end of last year.
Both private consumption and strong exports contributed to the pickup, up 0.4 per cent and 1.7 per cent, respectively, compared with the end of last year.
So far consumer sentiment has been stable in the face of turmoil in the euro zone, with business cycle expectations rising for the third month in a row, even as economists see signs of a slowdown in export markets ahead.
Willingness to spend increased in May to 32.0 from 27.6 in the previous month, supported by a strong labour market.
Recent wage agreements far outstripping inflation have boosted optimism that consumer spending will live up to its reputation as a bright spot in the German economy that can weather any bad news from the euro zone.
"An important prerequisite for a sustained positive development of private consumption remains a robust labour market and here the signal is, as before, on green," GfK said, adding that they saw employment increasing further this year.
But consumer confidence is not impervious to events outside Germany's borders, GfK warned, and other sentiment surveys in Europe's powerhouse have already been hit by poor data this month.
The Ifo business sentiment survey and the ZEW think-tank's poll tracking investor confidence both collapsed in May as uncertainty crept further towards the core of the euro zone.
Germany's manufacturing sector contracted at the fastest pace in three years in May, with new orders and export orders shrinking for the 11th month running.
"The present uncertain situation of the debt crisis poses a potential risk for Germany's domestic economy," GfK said. "Should the events involving Greece and other euro zone countries intensify further or even escalate, this could quickly bring the positive trend in consumption to a standstill."
Reuters
