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UPDATE 1-German consumer confidence to wane in April -GfK

Published 03/26/2009, 04:32 AM
Updated 03/26/2009, 04:48 AM

* GfK consumer confidence indicator for April slips vs March

* Economists expect rising unemployment to hit spending

(Adds economist comment, background)

By Brian Rohan

BERLIN, March 26 (Reuters) - German consumer morale should fall slightly in April after a grim run of economic reports, a survey showed on Thursday, and economists expect rising unemployment to hit spending in the next few months.

Market research group GfK said its forward-looking gauge of sentiment, based on a survey of about 2,000 Germans, fell to 2.4 for April from March's 2.5 reading, which was revised down from an initially reported 2.6.

April's figure compared with the 2.5 estimate made by economists polled by Reuters last week, and put the indicator at its lowest level since February, ending a six-month run of rises.

"Compared to other countries and sectors, consumption is still relatively good. Slowing inflation is easing the strain," said UniCredit economist Alexander Koch. "However, unemployment is rising. That will act as a brake on consumption."

Germany's headline unadjusted jobless total rose to 3.552 million in February, giving an unemployment rate of 8.5 percent.

Highlighting the bleaker consumption picture elsewhere in Europe, consumer spending in neighbouring France posted a 2.0 percent monthly decline in February -- its biggest fall in over a year.

Germans' shopping habits are key to the performance of the overall economy, Europe's largest, as consumer spending accounts for over half of gross domestic product (GDP).

Demand for cars in Germany has been boosted by a government payment of 2,500 euros ($3,394) to drivers who turn in vehicles over nine years old and switch to new models with lower emissions.

"Although this is good news, it will need more than only cars to drive Germany out of the recession," said Carsten Brzeski, economist at ING Financial Markets.

RECORD SLUMP

German GDP contracted 2.1 percent in the final three months of last year, its weakest quarter since reunification in 1990 and the third quarter in a row in which the economy shrank.

Germany has made a weak start to 2009, with industrial orders slumping 8 percent and output by a record 7.5 percent in January as the trade-reliant economy suffers from a collapse in foreign demand.

Pointing to these declines, Commerzbank forecast on Monday a contraction in GDP of 6 to 7 percent in 2009, easily the gloomiest outlook of any leading bank or think tank.

"Following pessimistic economic forecasts and slumps in production and exports, economic expectations have declined somewhat in March," GfK said in a statement.

The GfK indicator's income expectation component fell to -11.4 in March from -11.0 in February, and the "willingness to buy" component slipped to 13.9 from 14.6 over the same period.

Component readings lag the headline figure by a month.

A business cycle expectations index fell to -32.8 from -27.9 in February.

German companies are feeling the slowdown, with retail group Metro saying on Tuesday it expected growth to slow this year. "The global economic downturn is likely to deepen this year," Metro Chief Executive Eckhard Cordes said.

In the most recent available data, German retail sales fell 0.6 percent in January in a sign that rising joblessness was weighing on consumers despite a slowdown in inflation. (Reporting by Brian Rohan; editing by David Stamp)

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