German consumer morale improves heading into Feb as Covid situation eases

German consumer morale is projected to improve slightly in February as households hope for an improvement in price trends and a possible easing of the pandemic situation in the spring, a survey showed on Thursday.

The GfK institute said its consumer sentiment index, based on a survey of around 2,000 Germans, edged up to -6.7 points heading into February from a revised -6.9 points a month earlier, the first increase after two consecutive months of decline.

Analysts polled by Reuters had on average expected the index to drop to -7.8.

Consumers are once again showing some optimism at the beginning of the year with improved economic and income expectations as well as a stronger propensity to buy, GfK said.

"In particular, they are hoping for a slight alleviation in price trends, as in January 2022 the base effect resulting from the January 2021 reversal of the VAT cut will mitigate the inflation rate to some degree," GfK consumer expert Rolf Buerkl said in a statement.

"Nevertheless, consumers price expectations remain significantly higher than in recent years", Buerkl said.

He added experts assume the pandemic situation would ease in the spring, which could lead to a number of restrictions being removed.

The survey took place from Jan. 6 to Jan. 17, before Germany extended its pandemic measures amid soaring cases of infection with the fast spreading Omicron coronavirus variant.

The German government has cut its economic growth forecast for 2022 to 3.6% from 4.1% seen in October, pointing to headwinds for the economy in the first quarter due to the renewed restrictions.

The consumer climate indicator forecasts the development of real private consumption in the following month.

An indicator reading above zero signals year-on-year growth in private consumption. A value below zero indicates a drop compared with the same period a year ago.

According to GfK, a one-point change in the indicator corresponds to a year-on-year change of 0.1% in private consumption.

The "willingness to buy" indicator represents the balance between positive and negative responses to the question: "Do you think now is a good time to buy major items?" 

The income expectations sub-index reflects expectations about the development of household finances in the coming 12 months.

The additional business cycle expectations index reflects the assessment of those questioned of the general economic situation in the next 12 months.

(Reporting by Zuzanna Szymanska)