Consumers in Germany are getting more confident in economy

The Nuremberg-based market-research company said in a statement today that GfK AG`s sentiment index for August, based on a survey of about 2,000 people, increased to 3.5 from a revised 3 for July, a 14-month high. According to the median of 12 estimates in a Bloomberg News survey, the index was expected to hold at the initially reported July reading of 2.9. Besides, GfK’s measure of economic expectations increased to minus 14 from minus 22.6. A gauge of income expectations went up from minus 3.3 to 1.8 and an index of consumers’ propensity to spend surged to 25.1 from 14.5.

German consumer confidence increased more than expected this month on retreating inflation and signs the economy is starting to recover. The Bundesbank said on July 20 that the economy shrank “only slightly” in the second quarter after its record 3.8 % contraction in the first three months of the year. Due to falling energy costs and weakening demand, Germany’s inflation rate remained at zero in June, the lowest level in at least 13 years and oil prices have fell by more than half from their peak last year.

The government of Chancellor Angela Merkel, who will seek a second term in office in national elections in September, is spending about 85 billion euros ($121 billion) to recover the economy, which it predicts will contract 6 % this year. And while German investor confidence unexpectedly dipped this month, there are signs that the worst may be over. Manufacturing orders increased for a third month in May, while exports and retail sales gained and industrial output surged the most in almost 16 years.

In addition, the Bundesbank said that stimulus packages will support household income while the “favorable price climate” and a car-scrapping incentive should encourage private consumption. It also added a sustained stabilization in the consumer climate will depend above all on the further development of the labor market. Meanwhile, Germany’s jobless rate increased to 8.3 % last month. The Organization for Economic Cooperation and Development on June 24 predicted it will surge to 11.6 % next year.