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German, French Consumers Resist Crisis Pressure: Economy

Unemployment at a two-decade low is bolstering household spending. Photographer: Michele Tantussi/Bloomberg
Unemployment at a two-decade low is bolstering household spending. Photographer: Michele Tantussi/Bloomberg

May 25 (Bloomberg) -- German consumer confidence will hold steady in June, indicating some resistance among households to the region’s debt crisis that may help sustain growth after a first-quarter surge.

GfK SE’s consumer-sentiment index will hold at 5.7 next month, the Nuremberg-based market research company said today. Economists predicted the indicator would stay at May’s initial reading of 5.6, the median of 26 estimates in a Bloomberg News survey shows. A separate report showed consumer confidence in France increased in May to the highest since November 2010.

Germany’s economy grew 0.5 percent in the first quarter, helping the euro-area avoid a recession, and falling unemployment may help support consumer spending through the year. Still, business confidence dropped in May as the euro-area fiscal crisis worsened and inconclusive elections in Greece fueled concerns about a breakup of the currency bloc.

“Despite the current very high uncertainty in respect to the euro debt crisis, fundamentals bode well for an ongoing private consumption recovery,” said Alexander Koch, an economist at UniCredit in Munich. “Moreover, the latest strong correction in the oil price is positive for purchasing power, especially as costs for household energy -- as a frequently consumed good -- have a strong impact on perceived inflation.”

Greek Risks

GfK’s gauge of economic expectations jumped to 19.6 in May from 8.5 in April and an index of consumers’ willingness to spend rose to 32 from 27.6. A measure of income expectations eased 1 point to 32, today’s report showed.

“Despite recessionary trends in Europe and rising uncertainty as a consequence of the debt crisis, Germans feel that the national economy is continuing its upswing,” GfK said. Still, “if events in Greece and other euro-zone countries intensify or even escalate further, the favorable buying mood could very quickly be brought to a standstill.”

Germany’s state of Saxony said today that its inflation rate fell to 1.9 percent in May from 2 percent in the previous month. The Federal Statistics Office in Wiesbaden will release German inflation data on May 29.

In France, consumer confidence unexpectedly climbed for a third month as the election of President Francois Hollande buoyed households that expect less austerity. Sentiment rose to 90 from a revised 89 in April, above the 88 level that was the median forecast in a Bloomberg survey.

U.S. Confidence

Hollande won office this month promising more government spending than predecessor Nicolas Sarkozy, including the hiring of 60,000 teachers. He also pledged to tax annual incomes of over 1 million euros ($1.26 million) at a rate of 75 percent.

In the U.S., a report due later today may show the Thomson Reuters/University of Michigan consumer confidence gauge rose to 77.8 in May, the highest since January 2008, from 76.4 the prior month. That would match a preliminary reading published on May 11.

The relatively upbeat consumer reports compare with surveys yesterday showing the slump in euro-area manufacturing and services deepened in May. A composite index of both industries dropped to 45.9, the lowest in almost three years, from 46.7 in April. Separately, Germany’s Ifo institute said its business climate index fell to 106.9 from 109.9, the lowest since November.

The poor economic data and concerns that Greece may leave the 17-nation currency bloc are weighing on the euro, which is headed for a fourth straight weekly decline against the dollar.

‘Common Good’

The euro rose from a 22-month low today after Chancellor Angela Merkel left open a potential compromise on debt sharing in the euro area as Italian Prime Minister Mario Monti said he can help bring Germany round to acting in Europe’s “common good.” It traded at to $1.2583 as of 10:29 a.m. in London, up 0.4 percent from yesterday.

In Asia, India’s central bank chief pledged to take steps as needed to curb swings in the rupee as the currency’s slump threatens to stoke inflation and limit scope for interest-rate cuts.

“We will do whatever is necessary, consistent with our policy,” Governor Duvvuri Subbarao said. “We have taken action to improve the current flows, encourage inflows and also to curb speculation.”

The rupee’s 19 percent drop against the dollar in the past year adds pressures to an inflation rate already the highest among BRIC nations. The Reserve Bank of India will probably be unable to lower borrowing costs until October-to-December, Goldman Sachs Group Inc. said today as it downgraded its growth forecast for the country.

Elsewhere, Japan today reported that core consumer prices, which exclude fresh food, rose 0.2 percent in April from a year earlier, showing the Bank of Japan remains distant from its 1 percent inflation target after years of falling prices. Singapore’s industrial production unexpectedly fell in April as manufacturers cut output of electronics and pharmaceuticals. Manufacturing dropped 0.3 percent from a year ago after a revised 3.1 percent decline in March, the Economic Development Board said.

To contact the reporters on this story: Fergal O’Brien in London at; Jana Randow in Frankfurt at

To contact the editor responsible for this story: Craig Stirling at

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