German consumer confidence is up despite the eurozone's sprawling debt problems, a closely watched survey showed Monday, while the government reported that the inflation rate in Europe's largest economy remained higher than desired.
The GfK research institute said its forward-looking consumer confidence indicator for December rose to 5.6 points from a revised 5.4 points in November.
Despite a drop in income expectations, consumers' willingness to buy recorded a sharp rise of 9.1 points over the previous month to 40.3 points _ raising hope that domestic spending can help the economy even if demand for German exports tails off amid weakness elsewhere in the 17-nation eurozone.
GfK said the domestic economy is a "major pillar of economic growth in Germany."
"Given that the expansion of German exports is forecast to weaken considerably because of the international crisis, stable private consumption is key to the German economy continuing its upward trend and avoiding recession," GfK said.
The survey is based on around 2,000 consumer interviews, conducted each month on behalf of the European Commission.
The GfK survey follows another relatively-buoyant survey from the Ifo Institute, which also reported that its monthly confidence index rose unexpectedly for November, following four months of declines.
The good news on the economic front helped German stocks rally strongly Monday though hopes that Europe would finally come up with a solution to its debt crisis was the main reason behind the advance. The DAX index of leading German shares ended 4.6 percent higher at 5,745.33.
Germany's government is forecasting growth of 2.9 percent this year, but the export-driven economy is expected to slow down to growth of 1 percent in 2012 amid weaker demand from the eurozone and emerging markets.
Few economists think that Germany, the world's fourth-largest economy, will sink back into recession though Europe's debt problems could well alter expectations should the bloc not come up with a comprehensive plan to tackle the crisis that's already seen three countries bailed out.
On Monday, the Federal Statistical Office reported that Germany's annual inflation rate is expected to be an annual 2.4 percent in November 2011 as compared to the same month last year according to preliminary numbers _ unchanged from revised figures from October. According to numbers harmonized for European purposes, the annual rate is expected to come in at 2.8 percent, also unchanged.
Data from Germany are important as the European Central Bank decides next week whether to change interest rates for the 17-nation eurozone. The ECB, whose target inflation rate is just below 2 percent, faces pressure to cut rates amid worries the eurozone economy could slide into recession.
The figure could also affect Germany's ability to sell bonds, following a disastrous auction last week.
Germany is seen as the eurozone's most stable pillar and its borrowing rates have been driven down in recent months as investors sought a safe haven from Europe's sprawling debt crisis.
Last Wednesday's auction of euro6 billion ($8.1 billion) of 10-year bonds at a historically low interest rate of 2 percent met with only 60 percent demand.
The departing chief economist of the European Central Bank, Juergen Stark, told the Frankfurter Allgemeine Sonntagszeitung newspaper that the result was not surprising, as the bond yields were lower than the inflation rate.
"There is no reason to dramatize the difficulties at the auction of German 10-year bonds," he was quoted as saying.
Majority Leader and Armed Services Chair Visit Kiev: European Leaders Increasingly For U.S. Arms to Ukraine | Vivian Hughbanks