German consumer morale improves further heading into January

The mood among German consumers improved heading into January as they became more upbeat about their future income, a survey showed on Friday, suggesting household spending will continue to propel economic growth at the beginning of next year.

Private consumption has replaced exports as the main driver of expansion in Europe's largest economy - a shift helped by record-high employment, increased job security, rising real wages, moderate inflation and low borrowing costs.

The consumer sentiment indicator, published by the Nuremberg-based GfK institute and based on a survey of around 2,000 Germans, rose to 9.9. This was the highest reading since October and in line with an average forecast in a Reuters poll.

GfK researcher Rolf Buerkl said the survey was conducted in the first two weeks of December, meaning Monday's deadly truck attack on a Christmas market in Berlin was not reflected in the indicator.

But Buerkl said he did not expect that incident to significantly impact consumer morale.

"If at all, there could be a dent in next month's survey, but I don't see a massive long-term impact," Buerkl said, pointing out that consumers afraid of going out to shop would tend to buy more goods online instead.

The institute's gauge measuring income expectations jumped to 55.6 points, its highest level since August.

"The excellent condition of the labour market is awakening hope that there will be sustained strong growth in wages," Buerkl said.

A sub-index measuring overall economic expectations rose for the third consecutive month to its highest since June while willingness to buy edged down.

However, "retailers can probably safely assume that consumers will continue to flock to the shops in droves and spend money in the days following Christmas," Buerkl added.

Buerkl said German consumers seemed to be "totally immune" to a string of external risks, including uncertainties about the future policies of U.S. President-elect Donald Trump and the persistently high threat of Islamist attacks.

"It appears as if consumers generally regard labour market conditions as playing the crucial role in their decision as to whether to make purchases," Buerkel said.

The government expects private consumption and state spending to drive an overall economic expansion of 1.8 percent this year, which would be the strongest rate in five years.

For 2017, Berlin predicts a slowdown in growth to 1.4 percent due to weaker foreign trade and fewer working days.

How the consumer climate indicator works:

The consumer climate indicator forecasts the development of real private consumption in the following month.

An indicator reading above zero signals year-on-year growth in private consumption. A value below zero indicates a drop in comparison with the same period a year ago.

According to GfK, a one-point change in the indicator corresponds to a year-on-year change of 0.1 percent in private consumption.

The "willingness to buy" indicator represents the balance between positive and negative responses to the question: "Do you think now is a good time to buy major items?"

The income expectations sub-index reflects expectations about the development of household finances in the coming 12 months.

The additional business cycle expectations index reflects the assessment of those questioned of the general economic situation in the next 12 months.