German consumer optimism strongest since 2007, GfK survey shows

Sentiment among German consumers is set to rise to its highest level in almost six years heading into August, as households' propensity to buy improved along with an increase in their economic and income expectations at the start of summer, a survey report from market research firm GfK revealed Tuesday.

The forward-looking consumer confidence index posted 7 in August, up from 6.8 in July. A higher value was last recorded in September 2007, when the indicator was at 7.3. Economists had expected a more modest increase to 6.9.

"As summer finally arrived in Germany, it was not just the temperature but also the mood of consumers that was rising this month," GfK said in the survey report. The continued stability of employment prospects and a moderate rate of inflation caused optimism to rise once more in July, the report added.

The economic expectations of German consumers increased for the third consecutive month in July, with the corresponding indicator improving to 4.3 from 1.1 in June.

The level is only slightly above average and this suggested that the recovery of Germany's economy will be rather sluggish and is also likely to suffer some minor setbacks, GfK said. The firm pointed out that persisting recessions in a number of Eurozone countries and growth slowdown in China could adversely impact German economic situation.

The income expectations index rose for a fourth consecutive month in July and now stands at 42.8, which was 6.6 points above the June reading. A higher value was last recorded in June 2011, when the indicator posted 44.6. The indicator reflecting consumers' willingness to buy increased to an 18-month high of 40.7 in July from 36.5 in June. The consumer climate index edged up to 6.8 from 6.5 in June.

Private consumption is therefore confirming its important role as a reliable pillar for the German economy, GfK said. A favorable consumption situation helped the economy to escape recession in the first quarter of 2013.

The Bundesbank said in a report earlier this month that it sees stronger signs of a slowdown in growth in the third quarter after a solid expansion in the second quarter. The economy expanded 0.1 percent in the first quarter recovering from a contraction in the final quarter of 2012.