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German Consumer Confidence Survey at 5-year High

Friday, 8 Dec 2006 | 3:48 AM ET

German consumer confidence has edged up to a new five-year high as shoppers eye purchases ahead of a planned New Year increase in value-added tax and unemployment falls, according to a survey released Tuesday.

The GfK research group said its forward-looking consumer climate indicator edged up to 9.4 points for December from 9.3 in November.

That reading is the highest since November 2001, when it stood at 9.6 points, and was a little better than the 9.3 forecast of economists surveyed by Dow Jones Newswires.

Germany is increasing VAT paid by consumers to 19% from 16% on Jan. 1, a move aimed largely at curbing the country's budget deficit. While the move is expected to dampen at least slightly economic growth next year, it also appears to be prompting long-reluctant consumers to make major purchases now.

"The rational decision to bring forward purchases to miss the impending VAT increase in particular is likely to provide an additional boost in domestic demand at the year-end," GfK said in a statement.

A section of its index measuring Germans' propensity to make major purchases stood at 63.9 points in November -- a marginal half-point decline from the previous month, but 72 points higher than a year earlier.

As for consumers' outlook, GfK said they are torn between fears that the VAT rise and high energy prices will limit their purchasing power and "cautious optimism" over jobs. Unemployment, which has long put many Germans off major purchases, is under 10% for the first time in four years.

GfK said "a weak period in the first quarter" could be expected for consumer spending.

"The duration and intensity of this will depend on how smoothly the current economic upswing can be carried over into the next year," it said.

The GfK group's survey is based on around 2,000 interviews with consumers each month, conducted on behalf of the European Commission.

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