German consumption: is there hope for a revival?

In Germany private consumption virtually stagnated for nearly a decade and clearly lagged behind GDP growth. This Country Focus uses the estimation of a consumption function to show that the drop in employment is the most important
factor behind the reluctance to consume in the first half of this decade. However, given the significant labour market improvement since 2005, employment cannot explain the persistent sluggishness of consumer expenditure since then. We found that additional factors such as various components of disposable income, perceived inflation and one-off events like the VAT increase and the expiry of the more generous depreciation rules have also held back private consumption. Since these one-offs will no longer weigh on private consumption, employment continues to increase and inflation will hopefully abate, there are reasons for optimism for a
(moderate) revival of private consumption in Germany.