German consumers' willingness to make large purchases is the highest for at least two decades, in the latest sign that confidence is picking up gradually on the country's high streets.
The upbeat results of a survey by the Nuremberg-based GfK market research institute yesterday suggested that the effects of the industrial renaissance were trickling through to the consumer.
But economists warned that spending growth remained modest and that Germans might simply be bringing purchases forward to this year because of a planned three percentage point increase in VAT in 2007.
For almost half a decade, consumer spending in Europe's largest economy has been weak or declining.
The latest data fitted with the view that the outlook has improved - but not as dramatically as for the export-led industry sector, which has benefited from tight controls on wage costs.
Germans were realising the new-found strength of their large companies, even though incomes were still being held in check, said Dirk Schumacher, an economist at Goldman Sachs in Frankfurt.
"It is not clear whether the average employee will benefit in the way that they used to, and probably they don't expect to, but things are getting better . . . people don't feel that everything is about to crumble," he said.
GfK said it expected its overall "consumer climate" indicator to reach 6.8 in June, after a revised 5.8 for May.
That would be the highest since December 2001.
However, the GfK indicator was still well below its historic average and the recent rise has not been as pronounced as business climate indicators, such as that compiled by the Munich- based Ifo institute, which remains close to a 15-year high.
"The current level of the GfK consumer sentiment indicator isn't noticeably higher than during the previous three years, which were characterised by the weak performance of private consumption," said Alexander Koch, economist at HVB in Munich.
GfK suggested that the pick-up in consumer confidence probably reflected increased optimism about the government and more-generous-than-expected wage deals in the metal and electronic engineering sectors.
However, consumers' expectations about their income levels remained modest.
The indicator covering the propensity to buy larger items rose significantly in May to the highest level since the monthly survey began in 1980, GfK said.
But it noted: "The apparent cause . . . is the widespread debate about the rise in VAT."
Official data for German consumer spending in the first quarter of this year, released last week, showed an unexpectedly strong 0.6 per cent rise.
But that largely reflected a rebound after an exceptionally weak final three months of 2005, when consumer spending fell by 0.5 per cent.
The underlying trend may become clear tomorrow with the publication of official retail sales data for April.
Economists expect a significant rebound after a sharp fall in March.
Anything less would raise fresh questions about the breadth of Germany's recovery.
