3 January 2003, 16:12  German Consumer Confidence Falls to Eight-Year Low

/www.bloomberg.com/ By Sonja Dieckhoefer
Nuremberg, Germany, Jan. 3 (Bloomberg) -- German consumer confidence probably fell to the lowest in eight years in January, on concern about unemployment, tax increases and a possible U.S.-led attack on Iraq, the GfK market research company said.
GfK's consumer confidence indicator decreased to 4.5 points, the lowest since December 1994, from a revised 5.1 points, the group said. An index measuring expectations of economic growth in December fell to minus 26.5 from minus 25.7 in November.
``I don't expect a rebound until at least May or June,'' GfK economist Rolf Buerkl said in a telephone interview. ``The weak economy, fear of unemployment and a war with Iraq as well as tax increases are damping sentiment.''
Unemployment in Europe's largest economy is at a four-year high while growth slowed to a nine-year low in 2002, the government estimates. Business confidence dropped to an 11-month low in December. Consumers will cut spending and save more this year, an opinion poll showed today.
Another 30,000 jobs will disappear in the retail industry this year, the same as in 2002, said Holger Wenzel, the HDE retail assocition's executive director. German retailers employ 2.8 million workers.
The HDE retail association, representing 100,000 German retailers, said today that sales will drop 1.5 percent this year, after dropping an estimated 3 percent last year. Two months ago, the group had predicted this year's sales would fall 0.5 percent.
``All of this gloom is due to government tax measures,'' Wenzel said in an interview. German retail sales have fallen in seven out of the past 10 years, he added.
Chancellor Gerhard Schroeder's government raised energy taxes and social security contributions on Jan. 1. Other steps adopted since September's election victory include increases in value-added tax on some goods and a new levy on sales of securities and real estate.
``People have become enormously confused by the government's zigzag course on taxes,'' said Carsten Maschmeyer, chief executive officer of AWD Holding AG, a financial-services broker, in a faxed statement. ``As a result, consumers have become even more price- conscious.''
Some 81 percent of 1,007 respondents in a poll commissioned by AWD and released today by market research company Forsa said they will scale back daily purchases to counter rising costs. Nearly as many respondents, or 78 percent, said they will increase personal savings this year.
Still, GfK's indicator reflecting consumers' income expectations rose to minus 21.4 in December from minus 24.5 in November, while an index measuring consumers' inclination to buy in December gained to minus 42 from minus 55.4, the report showed.
GFK asked 2,000 consumers whether they ``deem it advisable to make large-scale purchases'' and how they expect their income and the economy to develop over the next 12 months. A reading of zero reflects the long-term average.
The survey is conducted monthly on behalf of the European Commission, which is expected to release consumer confidence for the 12 nations sharing the euro at noon Brussels time Wednesday.

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