Consumption in 2012 – replaces crisis fears

2011 proved to be an emotional roller coaster for Germans, with the crisis in the eurozone and stark warnings of a potential global economic collapse making headlines. At the same time, unemployment fell to a record low of under three million and the German economy grew significantly, with GDP up 3.0%.

Fears of a potential recession and the threat of some countries and banks going bankrupt had a marked negative effect on the economic expectations of German consumers. The indicator went into freefall over the course of the year, although at +30, the overall picture in Germany remained positive compared with its European neighbours. By way of comparison, economic expectations ran at an average of -30 in France, -34 in Italy and as low as just -49 points in Portugal and Greece.

Clear decline in the propensity of Germans to save, due to the debt and banking crisis and low interest rates

Source: European Commission consumer survey, indicator calculation: GfK Marktforschung

From panic saving to consumer optimism

Unlike in the rest of Europe, the stable job market stimulated German hopes for rising incomes. In the past, the expectation would have been that under the prevailing circumstances, Germans would have been very keen on saving to give themselves a buffer against the threatened economic downturn. However, record-low rates of interest and a severe loss of confidence in the financial markets drastically curtailed German consumer inclinations to save.

By contrast, the willingness to buy continued to grow and remained at a consistently high level. The index average in Germany for the year stood at +34 points, a value unequalled anywhere else in Europe. Although in former times, Germans were regarded as panic savers, they have now become Europe’s most optimistic consumers. They are investing their money in capital assets, such as real estate, cars and consumer durables, and this has given the economy a considerable boost.

The end of high-volume growth in food retailing

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Retail also benefited from the positive consumer mood. According to GfK calculations, German food retail and drugstore sales rose last year by a nominal 1.7% to €157 billion. However, in light of the marked rise in the price of raw materials, the real growth rate was rather modest. The current winners are the full-range retailers and drugstores, while the discounters’ share of sales has stagnated at around 43% of the total market.

As GfK analyses show, this signals the end of high-volume growth for food retailing. In future, success is likely to be achieved by value-added strategies and here, retailing can benefit from the growing consumer focus on quality, particularly in the younger generation. For 2012, GfK is anticipating a moderate rise in sales by a nominal 1.3% for food retailing and drugstores. But the increase may well be below inflation, and this would entail another reduction in volume.

In non-food retailing, which includes electrical goods, textiles, furniture and DIY merchandise, sales increased by about 1.0% last year to reach €148 billion. In view of the market saturation affecting many segments, this is still a good figure. In the past year, there was another significant rise in the e-commerce share among non-food merchandise groups, with online sales achieving growth in excess of 18% to record a total of just under €21 billion. For 2012, GfK is anticipating another nominal rise in sales of around 1.0% for non-food retailing.

Consumption in 2012 − Shopper enthusiasm replaces crisis fears

Consumer spending and confidence among Germans in 2011 above the previous year’s level and consistently high

Source: European Commission consumer survey, indicator calculation: GfK Marktforschung

As a result of the growth in private consumption and competitive export business, German GDP rose by 3.0% last year, which is markedly higher than most of its European neighbours. This gave the job market a considerable boost, which has been sustained this year. German income expectations are accordingly high.

However, these positive signals for private consumption are curbed by economic forecasts which are decidedly more negative. Based on the weakened global economy and resulting fall in exports, German GDP is not expected to rise more than 0.6% this year. Nor is there any quick solution for the euro and sovereign debt crisis on the horizon.

For 2012, GfK is forecasting a real-terms rise of 1.0% for private consumption in Germany. The sustained positive situation on the job market and expectations of higher incomes have given German consumers security in their planning for major purchases. The loss of confidence in the financial system is giving further impetus to the trend towards higher-value purchases. Consequently, private consumption is making a stable contribution to the economy and preventing a backslide into recession.

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