German Consumer Confidence Unexpectedly Declines

By Cornelius Rahn

Oct. 26 (Bloomberg) -- German consumer confidence unexpectedly fell for the first time in more than a year as concerns that rising energy prices and higher unemployment will erode spending power outweighed signs of economic recovery.

GfK AG’s sentiment index for November, based on a survey of about 2,000 people, fell to 4 from a revised 4.2 in October, the Nuremberg-based market-research company said in a statement today. That’s the first decline since September 2008. Economists had forecast an increase to 4.5 from an initially reported 4.3, the median of 24 estimates in a Bloomberg News survey showed.

Crude-oil prices rose to the highest in a year this month, threatening spending power at the same time as unemployment increases. While German business confidence rose to the highest in more than a year in October and manufacturing expanded, the expiry of government stimulus measures and a strengthening euro may curb the pace of the recovery next year.

“Despite the slight setback, private consumption remains a major source of support for the German economy this year, since investments and exports will record large decreases at the close of 2009,” GfK said in the report. “It remains to be seen whether private consumption can also fulfill this supportive function in the coming year.”

Spending

GfK’s measure of economic expectations increased to 8.7 from 3.4 in the previous month. An index of income expectations fell to 12.9 from 16 and a gauge of consumers’ propensity to spend dropped to 26.1 from 36.5.

“Anyone who believed in this summer’s rosy sentiment picture was fooling himself,” said Deutsche Bank Chief Economist Norbert Walter. “These levels were unsustainable. The direction downward now seems to be plausible and is here to stay for a few more months.”

GfK said one reason for the decline in consumers’ willingness to spend is the expiry of the “scrappage bonus,” a government subsidy that encouraged people to scrap an old car and buy a new one, at the end of September. Subdued inflation will also “lose its positive impact” on consumption in the near future, it said. Oil has risen 80 percent this year to around $80 a barrel.

Chancellor Angela Merkel’s government is spending 85 billion euros ($128 billion) on measures to energize the economy. It also plans to reduce taxes by about 24 billion euros.

Revenue at Volkswagen AG’s Audi luxury cars division will probably fall less than expected this year, and its German sales will return to “light growth” in 2010, Audi’s sales chief Peter Schwarzenbauer said last week.

The Economy Ministry raised its outlook for the economy on Oct. 16, forecasting growth of about 1.2 percent in 2010 after a 5 percent contraction this year. In April, it predicted a 0.5 percent drop in gross domestic product in 2010.

To contact the reporter on this story: Cornelius Rahn in Frankfurt at crahn2@bloomberg.net