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Germans Hit Stores Ahead of Sales Tax Jump

DW staff (sms)August 30, 2006

Four months before Germans watch the value-added tax jump from 16 percent to 19 percent, many consumers are growing skeptical about the country's economic prospects -- but still shopping, according to a new study.

Many Germans are rushing to buy new sofas before prices go upImage: dpa

In its August report, the GfK institute in Nuremberg found when it comes to Germany's economic future "confidence is losing more and more ground," as Germans believe that the pace of reforms adopted by the government of Chancellor Angela Merkel is "unsatisfactory."

The report noted that consumers are nonetheless showing "a strong propensity to make purchases," which it attributed to the planned tax increase starting on Jan.1, with the intent to buy sofas and automobiles being especially strong.

Waiting for ownersImage: AP

A potential increase in consumer consumption led the institute to increase it annual forecast from 0.5 percent to 0.7 percent.

Germany is likely to have already reached its shopping peak, the report added. The institute's monthly consumer climate index for August rose from 8.0 in July to 8.5 points and is expected to reach 8.6 points in September.

"The positive sentiment among German consumers appears to have reached its peak in the late summer of this year," the report said, adding that "the household consumption sentiment is not going to truly improve this year."

Government still optimistic

The government has lately displayed pronounced optimism, citing a sharp hike in growth in the second quarter, a gradual fall in unemployment and an improvement in the state of public finances.

She's still a happy shopperImage: AP

But the GfK found that "the good news on the labor front ... has not yet had an impact on the morale of German consumers."

The report, however, also said the falling confidence in Germany's economic future, as indicated in other reports, is not reason to assume impending economic doom in Germany, as it is still 23 points higher than this time last year.

"Although the indicator has fallen for the third time in a row, it would be too early to interpret this as a sign of an imminent downturn in the economy," the GfK said, adding that while consumers are becoming more skeptical about the economy, they do not see the economic situation as weakening.

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