In the Mood to Spend

The consumer climate forecast by the Nuremberg-based GfK market research organization improved slightly from a revised 8.5 points in July to 8.7 points in August.

"The consumer climate showed stability at a strong level in July," the GfK said, "with income expectations and buying propensity almost matching the record figures of the previous month."

Indictors show that Germans expect incomes to continue rising and are therefore prepared to buy more goods, it said.

"With consumers in the mood to spend even more, retailers can hope to achieve higher sales in the second half of 2007," the GfK added.

Caution creeps in

But economic expectations were slightly more cautious, following the euphoria that led to an all-time high for the economic outlook indicator in May. This was because rising interest rates, high energy prices and a strong euro triggered fears that the current dynamic growth in the German economy might start slowing down, the GfK said.

"German consumers do not believe that the current high growth rate of the economy can be maintained at quite the same level and expect the upturn to slow down over the coming months," it said.

"If the euro continues to be valued at the present high level or even higher, this may impact negatively on export prospects in the medium term, which have been the key driver of the strong economy to date."

Losing momentum?

However, the favorable trend on the labor market and expected future income growth largely compensated for these risks, the survey showed.

The survey was published a day after another key indicator, the Ifo business climate index, showed business sentiment in Germany dipped slightly in July.

Higher oil prices, rising interest rates and a strong euro have fuelled fears that the German economy might lose momentum after posting a 2.8 percent growth rate in 2006.

Many economists project growth in 2007 would match or possibly surpass last year's level but feel it might slip back towards 2 percent in 2008.