German consumer sentiment is stagnating amid uncertainty over the strength of a nascent recovery in Europe's largest economy, the GfK market research group said on Monday. "The recovery in consumer sentiment, which seemed to be becoming apparent in February, has come to a standstill," GfK said in a statement. "In terms of expectations over the economic situation in Germany, sentiment has suffered a clear dampener." The forward looking GfK consumer sentiment indicator, based on a survey of 2,000 Germans, was unchanged in April from a downwardly revised 5.1 in March. Nearly all responses to the GfK survey were gathered before the Madrid train bombings which killed 190. It was not yet clear what impact the atrocity may have had on sentiment, GfK said. GfK reported that March had seen a significant decline in consumers' expectations about the economy and their incomes, reversing gains in those components made in February.
GfK's "willingness to buy" index rose slightly in March by 0.7 points to minus 25, its highest level since December 2001, a month before the launch of euro notes and coins which proved a serious setback to German consumer confidence. But consumers' income expectations fell by over seven points to minus 7.5 while their expectations for the economy slumped to minus 12, the lowest level since July 2003, GfK reported. "In view of this, consumers are in tune with financial analysts and companies, who are likewise registering a deterioration of the economic expectations," said GfK.
BUSINESS, INVESTOR CONFIDENCE ROCKY
March saw a sharp plunge in the ZEW institute's gauge of investor expectations and a second consecutive fall in the influential Ifo institute's monthly business climate index, prompting a spate of warnings the recovery might be at risk. January saw a 3.1 percent monthly rise in real terms retail sales, the biggest in months, but Ifo said on Friday that retail sentiment deteriorated in March. Germany's two main retail associations, the BAG and the HDE, said this month they expected sales in 2004 to stagnate in real terms after two years of decline. GfK added that healthcare costs and pension caps had helped to reduce the effects of tax cuts approved in December which the government had hoped would inspire freer spending. The situation has been exacerbated by unexpected increases in seasonally adjusted unemployment in January and February, muting optimism that Europe's largest economy will achieve significant growth in 2004 after three years of stagnation. "The above mentioned uncertainty, in conjunction with the weak labour market, will presumably sooner cause domestic demand to be more of a burden again for overall economic growth this year," said GfK.///