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German Consumer Morale Falls to 5-Year Low: GfK

German consumers have become more downbeat than at any time since the recession year of 2003 due to growing concerns about inflation and turmoil on financial markets, the GfK market research group said on Monday.

The forward-looking GfK consumer sentiment indicator, based on a survey of 2,000 Germans, fell to 2.1 for August from a downwardly revised 3.6 in July.

This took the index to its lowest level since June 2003, GfK said.

The consensus forecast of 27 economists polled by Reuters last week was for a reading of 3.5.

"New record highs on energy prices, mounting recession fears and a renewed flare-up in the financial market crisis have seriously unsettled consumers," GfK said in a statement.

Inflation in Germany accelerated last month to its highest level since 1993, while the Ifo think tank's gauge of German business sentiment suffered its sharpest drop in July since shortly after the Sept. 11, 2001 attacks on the United States.

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Concerns about the risk of a recession have increased in recent weeks, and the German finance ministry has already said the economy probably shrank markedly in the second quarter.

The last full-year of negative growth in Germany was in 2003.

Financial markets were also rocked in July by fresh concerns about the health of the U.S. housing market and mortgage lenders Freddie Mac and Fannie Mae.

Although wage negotiations in Germany have yielded the highest settlements for some sectors in well over a decade, GfK said the inflationary surge was eating up these gains.

A GfK gauge of survey respondents' income expectations, which is for July, slipped to -20.0 from -7.2 in June.

This was the lowest reading in nearly four years.

At the same time, a measure of consumers' willingness to spend hit its weakest level in more than three years.

An index which follows their expectations for the economy turned negative for the first time since November 2005.

"Even the beneficial effect of positive labor market developments is being overshadowed by the price increases and is hence being pushed into the background," GfK said.

German employment is now at a record level following a growth spurt over the past two years.

Nevertheless, consumer spending has been sluggish this year and the Federal Labour Office said last week the recovery in the labor market had now passed its zenith.