German consumer confidence is stabilizing but people remain wary that budget cuts will have a negative impact on their personal finances, a closely watched survey showed Wednesday, even as the government insisted that the economic crisis is over.
Germany's GfK institute said its forward-looking overall indicator for July stands at 3.5 points, unchanged from June, when it slipped from 3.7 in May.
Germany, Europe's biggest economy, has settled into a modest recovery over the past year as healthier global demand helps its exports.
GfK said the upward trend in exports is having a "particularly positive" effect on economic growth and the drop in value of the euro has provided additional stimulus for German exports outside the 16-nation euro zone. The euro, which traded above $1.50 in December, hit a four-year low below $1.19 on June 7.
It cautioned, however, that it is still "essential that the extensive discussions about the national debt and the stability of the euro are followed up with action."
The Nuremberg agency said as Germany's economic recovery moves ahead, positive reports from the labor market are causing consumers to take a somewhat more optimistic view of the future but they are still worried about Germany's upcoming austerity package.
Earlier this month, Finance Minister Wolfgang Schaeuble announced welfare cuts and new taxes aiming to save 80 billion euros ($98 billion) by 2014, which some economists have worried might slow the German recovery.
"Consumers fear that they will predominantly have to bear the financial burden, and will suffer corresponding strain on their income," GfK said.
The study — based on 2,000 consumer interviews — showed Germans' personal income expectations dropped for the second month in a row, dipping 15.5 points to 8.2. But GfK noted that is still well above June 2009, when income expectations were at minus 3.3.
Ahead of this weekend's G-20 summit, President Barack Obama wrote a letter urging world leaders not to threaten the global recovery by trimming spending prematurely. The letter also criticized countries too heavily dependent on exports — a barely hidden reference to China and Germany.
But Schaeuble defended the need for the cuts, telling the Passauer Neue Presse newspaper that "the crisis is behind us" and that Germany's economy is growing again
"That is why we now have to cut into the high rate of creating new debt," he said. "That's what we have pledged to do in the international arena — but we will not save ourselves to death."
Munich's Ifo Institute on Wednesday raised its prediction for German 2010 growth by 0.4 percentage points to 2.1 percent, and for 2011 to 1.4 percent from 1.2 percent.
Ifo President Hans-Werner Sinn said he thought government attempts to reduce debt would help provide the foundation for long-term economic strength.
He said Germany's economy would be helped by low interest rates in the euro zone, and also because the uncertainty surrounding the economic strength of other countries meant more capital was likely to remain in Germany.
German Economy Minister Rainer Bruederle told reporters in Berlin that the government is still planning to cut taxes by 2013. He would not given an exact date. His party, the business-oriented Free Democrats, had promised tax cuts during last year's election campaign.
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