German GfK Consumer Confidence Holds Steady for a Third Month

By Gabi Thesing

April 27 (Bloomberg) -- German consumer confidence unexpectedly held steady for a third month as slower inflation boosted household purchasing power and the recession showed first signs of easing.

GfK AG’s confidence index for May, based on a survey of about 2,000 people, was unchanged from April at 2.5 percent, the Nuremberg-based market-research company said in a statement today. Economists expected a decline to 2.3, according to the median of 22 estimates in a Bloomberg News survey. April’s result was revised up from 2.4.

German business and investor confidence increased this month on hopes that interest-rate cuts and government stimulus packages will lift the economy out of its worst recession in over six decades. Germany’s leading economic institutes predict the economy, Europe’s largest, will shrink by 6 percent this year.

“The consumer climate remains robust overall, despite an economic environment which is generally recessive,” GfK said in a statement. “However, the index remains at a very low level.”

GfK’s measure of economic expectations in Germany rose to minus 31.2 from minus 32.8 and a gauge of income expectations increased to minus 8 from minus 11.4. An index of consumers’ propensity to spend declined to 12.4 from 13.9.

Gfk said factors supporting consumer confidence include tentative signs of an economic recovery later this year, low inflation rates and rising pensions. Only the other hand, concern about rising unemployment may damp sentiment in coming months, it said. “The biggest risk to the consumer climate comes from the labor market.”

Job Losses

Germany will lose 1.4 million jobs this year and next, pushing the average number of unemployed to a five-year high of 4.7 million and the jobless rate to 10.8 percent by the end of 2010, the economic institutes said in a report last week.

Chancellor Angela Merkel’s coalition plans to spend about 82 billion euros ($107 billion) to stimulate growth, including tax breaks and investment in infrastructure. Pensions in Germany’s 10 western states will rise 2.4 percent from July 1, the most since 1994. In the eastern states, retirees will gain 3.4 percent.

Praktiker AG, Germany’s second-biggest home-improvement retailer, said on April 22 that sales improved this month after a tough first quarter, in which its operating loss more than doubled from a year earlier. “The first quarter was disappointing, but it doesn’t give an indication of where 2009 is going,” Chief Financial Officer Thomas Ghabel said.

To contact the reporter on this story: Gabi Thesing in Frankfurt gthesing@bloomberg.net.