German economic stimulus package helps increase consumption

Special Report:Global Financial Crisis

BERLIN, March 9 (Chinese media) -- Despite an economic

recession in Germany, government's economic stimulus package has served to shore

up consumers' confidence and led to slightly greater consumption demand.

The German market research organization GFK predicted

consumption for individuals in 2009 would increase by 0.5 percent.

It said the overall indicator for consumer climate

would raise to 2.6 points in March this year, up from 2.3 points for February.

The GFK attributed the higher-than-expected rise in

consumption to government's economic stimulus packages.

In response to the world financial crisis, the German

parliament successively approved two economic stimulus packages,

a32-billion-euro (about 40 billion U.S. dollars) package last November, and a

50-billion-euro (about 62 billion dollars) package in January, known as Package

II -- the country's largest rescue package since the World War II.

The two packages were to inject 82 billion euros

(about 102 billion dollars) into the economy in the next two years, which

accounted for about 1.6 percent of its GDP, the biggest economic injection in

Europe.

Package II will be mainly used in infrastructure

investments and tax cutting. It also includes a number of specific measures to

expand domestic consumption, such as cutting the lowest income tax rate and the

medical insurance fees, providing additional support for families with children,

as well as encouraging car sales.

Under the package, the government will grant 2,500

euros (3,145dollars) as subsidy to car owners as long as he or she replaces his

or her used car of over nine years old with an environment-friendly one.

Some tax refunding programs in the package also have

positive effects on consumers' income expectations.

The report said the refunding of commuter tax in some

cases can reach more than 1,000 euros (1,258 dollars), which have provided an

unexpected windfall in many employee households, thereby have strengthened their

purchasing power and will.

Besides government packages, a low inflation also

played an important role in the recovery of consumer mood.

Statistics from the German federal statistical office

(Destatis) said the inflation rate in February stood at only 1 percent.

The GFK also considered low inflation as one of the

major factors that have encouraged consumer climate.

However, the whole German economy is still in a

recession, as some analysts said although the consumption increase is helpful

for the whole economy, it can not offset the negative effects of the sharp

decrease in exports and investments.

"The further development of the consumer economy will depend on whether the financial crisis will become an employment market crisis, and if so, to what extent. A very large rise in unemployment would also put a considerable damper on the consumer mood," it warned.