Still, despite all these caveats we too, expect private consumption and retail sales to expand somewhat faster in 2011. The preliminary GDP data for 2010 shows a 0.5% rise in real private consumption (-0.1% in 2009), which is more or less the average rise registered over the last decade (0.4%). For 2011 we expect private consumption to expand by 1 ¼%, retail sales could rise by 1 ½% to 2% in real terms.

Our cautious view is based on private households' income development. In 2010 real disposable income rose by 1% on the year driven by a 2.7% increase in gross wages and salaries, courtesy of a 2.6% rise in overall working hours, and lower tax and social security contributions, which turned the 2.7% rise in gross wages into a 3.9% rise in net gross wages and salaries (2.0% in real terms). This was the strongest increase since 2000.

This year we expect the increase in working hours to slow substantially. Even if hourly wages increase by 1 percentage point more than last year's 1 ¾%, this year's rise in gross wages will not be much higher than in 2010. Moreover, higher social security contributions (health contributions were upped by 0.6 percentage point) will reduce the increase further this year. All in all, households' disposable income should increase by around 2 ¾% (2010: 2.8%). Taking a private consumption deflator (i.e. inflation of around 1 ½%) into account, real disposable income will rise by 1 ¼%. Assuming a decline in the savings ratio, private consumption could rise slightly more, but this is all within the normal margin of errors.

Eoin Treacy's view
German consumers: Will they or won't they? - This article by Stefan Schneider for Deutsche Bank may be of interest to subscribers. Here is a section:

Still, despite all these caveats we too, expect private consumption and retail sales to expand somewhat faster in 2011. The preliminary GDP data for 2010 shows a 0.5% rise in real private consumption (-0.1% in 2009), which is more or less the average rise registered over the last decade (0.4%). For 2011 we expect private consumption to expand by 1 ¼%, retail sales could rise by 1 ½% to 2% in real terms.

Our cautious view is based on private households' income development. In 2010 real disposable income rose by 1% on the year driven by a 2.7% increase in gross wages and salaries, courtesy of a 2.6% rise in overall working hours, and lower tax and social security contributions, which turned the 2.7% rise in gross wages into a 3.9% rise in net gross wages and salaries (2.0% in real terms). This was the strongest increase since 2000.

This year we expect the increase in working hours to slow substantially. Even if hourly wages increase by 1 percentage point more than last year's 1 ¾%, this year's rise in gross wages will not be much higher than in 2010. Moreover, higher social security contributions (health contributions were upped by 0.6 percentage point) will reduce the increase further this year. All in all, households' disposable income should increase by around 2 ¾% (2010: 2.8%). Taking a private consumption deflator (i.e. inflation of around 1 ½%) into account, real disposable income will rise by 1 ¼%. Assuming a decline in the savings ratio, private consumption could rise slightly more, but this is all within the normal margin of errors.

My view - The Eurozone has experienced some role reversal as a result of the debt crisis. The core, led by Germany, is now the higher growth area, while the periphery is mired in debt and struggling to grow. The Euro is currently too strong to provide the necessary cost advantage to spur peripheral growth and too weak to contain potential inflationary pressures in the core.

This chart of the US Dollar / Deutsche Mark rate updated to reflect the Euro's introduction bears this point out. Without the burden of the Euro, the Mark would be one of the strongest currencies in the world. Its relative weakness is providing Germany's exporters with a competitive advantage which is being reflected in the stock market.

The DAX Index has partially unwound its overbought condition relative to the 200-day MA, having consolidated near 7000 since early December. A sustained move below 6800 would be required to question current scope for additional upside and indicate a swifter reversion towards the trend mean.