German, French consumer confidence holds up despite slump (Roundup)

By Andrew McCathie Jan 28, 2009, 11:20 GMT

Berlin - European consumer confidence continues to hold up in the face of deepening global gloom, key surveys released Wednesday said, as dwindling inflation helped to offset worries about the fallout from the worst economic downturn since World War II.

The surveys showed consumer confidence in both Germany and France beating analysts' expectations as the 16-member eurozone's two biggest economies entered the new year.

Indeed, while the Paris-based statistics office Insee said French consumer confidence rose to 9 month high this month, the Nuremberg-based GfK marketing institute said its forward-looking consumer confidence index came in at 2.2 points in February. This was higher than the 2 points predicted by economists.

'Recent sharp falls in the inflation rate are currently having a positive impact on the propensity to consume, with the result that the latter demonstrated strong growth at the start of this year,' GfK said in its latest survey of the mood among German households.

The GfK's February reading was unchanged from the January figure, but with the indicator's component gauging German households' willingness to buy jumping in January and cancelling out consumers' worries about their income prospects and the general economic prospects.

'However,' the GfK said, 'current announcements regarding cuts in working hours, compulsory leave and the threat of redundancies mean that unemployment is again a growing fear among the employed, and income expectations have declined for the second time in a row.'

Moreover, Wednesday's consumer confidence surveys for Germany and France came amid a steady stream of bleak economic news, with companies announcing layoffs as they face up to falling demand.

On Wednesday, Europe's biggest software manufacturer SAP added to its name to the list of companies cutting jobs when it announced that the global economic downturn had forced the German-based company to slash its workforce by about six per cent or 3,000 jobs.

'It is too early to claim that German consumers will shop their way out of the recession,' said ING economist Carsten Brzeski.

While the German government has forecast Europe's biggest economy will contract by 2.25 per cent this year, French economic growth is expected to slump in 2009 by about 2 per cent with the eurozone economy contracting by 1.9 per cent this year.

But the release of the two surveys also came amid signs that the economic slowdown, which began to emerge last year could be starting to reach its plateau.

This is likely to strengthen the hand of those in the European Central Bank's rate-setting governing council arguing against the ECB pursuing aggressive cuts in the cost of money to help spur economic growth.

To be sure, the round of hefty global interest rate cuts, falling oil prices and government stimulus packages are helping to raise hopes of an economic pickup later in the year.

While the German Cabinet this week signed off on a record 50-billion-euro (66-billion-dollar) stimulus package this week, Paris drew up a 26-billion-euro stimulus plan.

Another key survey published Tuesday showed business confidence in Germany also defying the current bleak economic climate to chalk up its first increase in eight months.

This followed the release of a survey showing German investor confidence jumping more than expected this month, as hopes rose that signs of an economic recovery could emerge in Europe's biggest economy as the year unfolds.

While the purchasing managers' indices (PMIs) for the eurozone's manufacturing and service sectors posted surprise increases in January, Belgium's key economic sentiment indicator rose slightly this month, ending four months of steep falls.

Analysts had forecast a decline in the Belgian indicator, which is often seen as a bellwether survey for the eurozone.

Instead of slipping to minus 45 in January from minus 44 in December as analysts had forecast, France's consumer confidence index rose to minus 41.

With oil prices slumping, annual inflation in France slowed to 1 per cent in December from 1.6 per cent in November. Consumer prices in Germany also slipped, falling to 1.1 per cent in December from 1.4 per cent in November.

While French households viewed their personal financial position positively, worries about jobs have begun to take hold with the Insee survey's employment outlook falling to 7 after holding steady at 11.

Releasing its survey, the GfK said the component gauging German households' willingness to buy leapt to 15.5 in January from minus 6.3 in December.

At the same time, income expectations in Germany fell for the month to minus 20.5 from minus 15.4 in December, while economic expectations slipped 0.5 to minus 32.9.