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Survey shows consumer confidence falling in Germany on market turmoil

Survey shows consumer confidence falling in Germany on market turmoil

Consumer confidence in Germany, Europe's biggest economy, has fallen amid the past month's turbulence on global financial markets, according to a survey published Wednesday.
The GfK research group said its forward-looking consumer climate indicator for September stood at 7.6 points _ down from a revised 8.5 in August, and the first drop since March. Analysts surveyed by Dow Jones Newswires had forecast that the index would remain at 8.5.
GfK said August's market turmoil, a result of the subprime credit crisis in the U.S., helped put "a damper on the euphoria of previous months."
A highly publicized increase in the price of some food products, particularly dairy items, also weighed on consumers' income expectations, the group said.
Germans' economic outlook is darkening after peaking in May, the survey showed. An indicator measuring their outlook lost 16 points from July to stand at 48.4 in August _ although it was still well above its level a year earlier.
While Germans are not worrying about a recession, "the current turmoil in the international financial markets is consolidating the consumer assumptions that the dynamic economic growth Germany has been enjoying is likely to lose some of its pace," GfK said.
So far, however, that has not impacted seriously their willingness to make major purchases, according to the survey. An indicator measuring propensity to buy slipped by 2 points in August to 6.4.
The decline in the GfK index follows falls this month in two other surveys that are closely watched indicators for the German economy _ the Ifo index of business confidence and the ZEW survey of investor confidence.
Germany has been emerging over the past two years from a lengthy period of economic stagnation that pushed up unemployment and prompted Germans to tighten their purse strings.
Economists argue that, while economic confidence is softening from high levels, the recovery remains on solid ground.
Alexander Koch, an economist with Unicredit in Munich, noted that a "vibrant labor market performance" had already helped consumer confidence recover from a dip caused by a hefty increase in value-added tax from January.
"As we do not expect drastic spillover effects of the subprime crisis on the real economy, employment should increase further and help to stabilize consumer confidence in the months ahead," Koch wrote in a research note.
"Although the peak in growth dynamic is behind us, the prerequisites for a continuing recovery in private consumption still remain the best in many years," he added.
GfK said the positive employment picture _ German unemployment, which peaked at 12.6 percent in early 2005, stood at 8.9 percent in July _ set the scene for consumer confidence to climb again.
However, it said, "for this to happen, the debate concerning further, massive price increases needs to be resolved, and this applies equally to the upheaval in the financial markets."
The GfK survey is based on monthly interviews with about 2,000 consumers.