Studio Guest – Jürgen Pfister on consumer sentiment

Jürgen Pfister is chief economist at the Bayerische Landesbank in Munich. We will talk with him about the consumer climate in Germany and its effect on the economy. DW-TV: I'm joined now by Jürgen Pfister, chief economist at Bayerischen Landesbank. Assuming that you do go shopping from time to time, have you changed your own shopping habits? Jürgen Pfister: My personal spending behaviour has not changed recently, which is due mainly to time constraints. I spend very little in the street. DW-TV: But the streets are still full of people, like here in Berlin, but window-shopping doesn't necessarily put money in the retailer's till: Are we becoming a nation of misers? Jürgen Pfister: What we've been observing for quite a while is that retail sales are very weak in Germany. This is mainly due, in the recent past, to the unexpected rise in consumer price inflation, which stems from much higher energy and food prices. This has created a lot of uncertainty among consumers so they save more, which is of course intensifying the problem. DW-TV: It can be proven that there is greater reluctance among consumers: There are already figures out, of course, the index of German market research company GfK shows that consumer sentiment in Germany has plummeted from August last year to August 2008 – and the trend is expected to continue downwards. That's quite a drop in such a short period of time. What's the biggest problem? Jürgen Pfister: The biggest problem is this sharp surge in consumer prices. But on top of this we can also see signs of a weakening of the economy: growth is slowing down significantly, the labour market is still improving, but we face much less positive figures in times to come and people will react to this by not spending an shifting their spending decisions. DW-TV: Obviously that is also bad for the economy. Something has to be done about it. So what can be done? What about Value Added Tax - or sales tax - which was raised in January 2007 from 16 to 19 percent. Should it be reduced again? Jürgen Pfister: This was certainly a major drag on consumption but I think it would be a mistake in policy to change it again. We need more consistent policies - people have to know what they can expect in future. This should not be changed - also for the sake of fiscal consolidation. DW-TV: Where does this insecurity stem from? We had really good unemployment figures - unemployment went down over several months and that trend is set to continue for a while - so why this uncertainty? Jürgen Pfister: One important reason for the uncertainty is the price shock. We are now accustomed to inflation rates between 1 and 2 percent, and now it is been 3 and a quarter percent. People expect it to go up further, and this of course makes life much more difficult for them. DW-TV: If we have such high inflation, what about wage increase? Jürgen Pfister: Wage increase is going up, but I would say for other, cyclical reasons, because of improvements in the labour market. The problem is that the money that is being spent and causing the price hikes is not going to German companies but rather to oil producers and food producers around the world - so it cannot be compensated for with higher wages in German companies. (Interview: Monika Jones)

DW-World | September 2, 2008

Tags:. .berlin. .value. .further. .period. .consumers