BERLIN, March 28 - German consumers grew more pessimistic in March and even before the outbreak of war in Iraq they foresaw no improvement in April as the build-up to the conflict and rising joblessness added to fears of recession. The Nuremberg-based GfK market research group said its consumer climate indicator for April was stuck at 3.7, the same as a downwardly revised reading in March, representing the worst levels in more than eight years. The data is based on a survey of 2,000 German consumers which was carried out in the first half of March, before the start of war in Iraq on March 20. "In addition to persistently high unemployment, which threatens to rise further in March and downward revisions to growth, the Iraq conflict also appears to have weighed on sentiment," GfK said in a statement.
"In the eyes of consumers, there is an increased probability that Germany can slide into recession," it said. The German economy grew by just 0.2 percent in 2002, its slowest rate in nine years, and many leading institutes say growth will not improve much this year. The GfK indicator was published just days after Germany's main business climate barometer, Ifo, showed a surprise decline to 88.1 in March from 88.9 in February. Consumers' fears about the economy were reflected in the GfK data, with the economic expectations component slipping to -28.6 in March from -25.9 in February. Seasonally adjusted unemployment, which topped 4.3 million in February, and is expected to keep climbing, also weighed on consumers' income expectations, as did talk of reforming Germany's costly social welfare system, which many fear will leave them worse off. The income expectations component inched down to -21.4 in March versus -20.9 in February. "The continuing debate on tax and social welfare reforms have added to uncertainty. A number of consumers appear to fear reforms will entail a loss of income or additional financial burden," GfK said.
GfK said retailers' special offers and discounts persuaded more Germans to part with their cash, however, and the "willingness to buy" component edged up to -26.6 in March from -30.6 in February, its highest level since January 2002, when confidence plunged due to the launch of euro notes and coins. GfK said there would be no broad-based improvement in consumer spending as long as firms kept laying off workers. "Above all, positive signals from the labour market are necessary to give consumers more planning security, and it cannot be ruled out that the Iraq war will further weigh. If the war drags on, a sharp downturn in consumer sentiment is likely."//