BERLIN (Reuters) - German consumer morale remained unexpectedly stable heading into September, a survey showed on Wednesday, suggesting that household spending will continue to prop up Europe’s largest economy despite its deteriorating growth outlook.
The GfK consumer sentiment indicator, based on a survey of about 2,000 Germans, was unchanged at 9.7 compared with the previous month. The reading beat a Reuters Poll of analysts who had expected a decline to 9.6.
Household spending has become an important pillar of support for Germany as its exports falter. Domestic demand is boosted by record-high employment, above-inflation pay increases and low borrowing costs.
The economy contracted by 0.1% on weaker exports in the second quarter, data showed on Tuesday, highlighting Germany’s Achilles’ heel in times of weaker foreign demand, escalating trade disputes and Brexit uncertainty.
“Consumers are heading into an economic maelstrom,” GfK researcher Rolf Buerkl said. He pointed to the survey’s sub-indicator for economic expectations which fell to its lowest level in more than six and a half years.
“Trade conflicts with the United States and the threat of tariffs for German exports as well as ongoing Brexit negotiations and the prospect of a no-deal Brexit mean that consumers are seeing an increased risk of recession in Germany.”
However, income expectations declined only slightly while consumers’ propensity to buy even improved, the survey showed, suggesting that both are defying the current economic downturn.
This means the conditions should be in place for domestic demand to provide impulses for the sluggish economy in the coming months, Buerkl said.
The German state recorded a whopping budget surplus of 45.3 billion euros ($50.5 billion) from January to June, and senior government officials have signalled they are ready to inject the money into the economy to counter the threat of a recession.
The outlook for the economy is uncertain as sentiment indicators point to a bumpy road ahead. If exports remain sluggish, another quarter of contraction could be on the cards which would be a technical recession.
Reporting by Michael Nienaber; Editing by Toby Chopra