German consumer morale rose to its highest level in seven years heading into March as shoppers in Europe's biggest economy became more upbeat about their future income.
GfK market research group said today that its forward-looking consumer sentiment indicator, based on a survey of around 2,000 people, rose to 8.5 going into March from an upwardly revised 8.3 the previous month.
That was the highest reading since January 2007 and beat the consensus forecast in a Reuters poll of economists for 8.2, boosting expectations that domestic demand will drive German economic growth this year.
"This positive development provides a good foundation for private consumption continuing to play a key role in economic growth this year," GfK said.
Private consumption propped up growth in 2013, expanding more than twice as strongly as overall gross domestic product (GDP). GfK predicts private consumption will increase by 1.5% in real terms this year.
Detailed GDP data released yesterday shook confidence in domestic demand, which was a key pillar of support throughout most of 2013, by showing it dragged on growth in the fourth quarter.
But economists expect domestic demand to become a major growth driver again this year and the government is relying on it to fuel a predicted 1.8% expansion of the traditionally export-oriented economy as foreign trade is seen dampening growth.
The GfK survey showed consumers were more optimistic about their future earnings than at any point since January 2001 due to the robust labour market and an economic upturn.
That tallies with the government's forecast that nominal earnings will jump by 2.7% this year. There are already positive signs in this regard and earlier this month chemical workers secured a 3.7% pay rise for the next 14 months.
Consumers' willingness to buy was down slightly on the month but remained close to its highest level in seven years as record employment levels and low interest rates encouraged the traditionally thrifty Germans to spend rather than save.
Germans are tending to splash out on travel, holidays and services like renovation and energy-efficient refurbishment rather than goods in traditional high street stores, GfK said.
Consumers became slightly more downbeat about the German economy's prospects but remained confident that it had come through a period of weakness and would now accelerate.
The German economy, which had powered ahead early on in the euro zone crisis, weakened in the last two years and in 2013 grew at its slowest pace since the global financial crisis.
Other recent sentiment surveys have shown consumer and business morale brightening, suggesting the economy will gain momentum in early 2014.
But some economists have suggested that these forward-looking "soft" indicators are overshooting actual performance, especially given that the latest hard data has shown exports, industrial output and orders all falling in December.