Consumer morale in Germany unexpectedly edged up going into July on improving income expectations.
But worries over the euro zone crisis risk hurting consumption in the months ahead, a survey by GfK market research group shows today.
Recent data has suggested Europe's biggest economy is losing stamina as austerity measures and worries over the crisis hit investment and exports.
The forward looking consumer sentiment indicator rose to 5.8 heading into July from 5.7 in June, bolstered by a jump in income expectations to 40.1 from 32.
The reading bucked expectations in a Reuters poll of 24 economists for a drop to 5.6.
But consumers were more pessimistic about the outlook for the German economy, with an expectations reading dropping 16.6 points to 3 in June, the lowest since December 2011.
"Clearly, consumers increasingly fear that Germany will also be dragged more into the downwards spiral of the euro zone," GfK said in a statement. "So far, however, citizens see the dangers from abroad exclusively for the economy in general and less for their own personal situation," it added.
"They are considerably more positive about the development of their own financial situation than in the previous month. As a result the willingness to buy rose once again from an already high level," it said.
Germany has enjoyed strong economic growth throughout much of the sovereign debt crisis, outpacing its peers. In the first quarter of 2012 the economy grew by 0.5%, shaking off recession fears after it shrank 0.2% at the end of 2011.
Private consumption was one of the key factors driving growth and is set to rise around 1% in real terms in the full year, GfK said, confirming its previous forecast. "Increasing employment numbers as well as better wage deals in comparison to previous years are allowing expectations for further income development to rise," GfK.
"On top of that, inflation pressure has eased recently. Consumers see their purchasing power strengthened by this,'' the survey said. Germany's unemployment rate eased to 6.7% in May from 6.8% a month earlier and is seen staying steady this month, according to economists.
Data due out tomorrow is expected to show German consumer prices dropping further below the 2% threshold for price stability to 1.8% this month. Expectations of a higher income combined with a lack of faith in financial markets and low interest rates are prompting Germans to consumer more rather than save, GfK said.
However, GfK warned this could change if rising uncertainty over the euro zone crisis fed through to consumer morale.
"The increasing uncertainty due to the worsening of the euro crisis, intense discussions about a possible exit of Greece from the common currency bloc, as well as the crisis of the Spanish banking sector could impact the German consumer more and more going forward," the research group said.
Other recent data has indicated Germany's economy is slowing. The closely watched Ifo survey last Friday showed business sentiment fell for a second month in a row in June to its lowest level in over two years.
And a purchasing managers' survey showed the private sector shrank for the second month running in June, with manufacturing activity hitting a three-year low. But retail sales data due this week are expected to show turnover remaining unchanged in May after rising more than expected in April.