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ECONOMY

German consumer confidence tanks

German consumer confidence has fallen to a 30-month low as climbing energy prices reduce household purchasing power, a study by the GfK research institute showed on Tuesday.

German consumer confidence tanks
Photo: DPA

The latest barometer of consumer sentiment in Europe’s biggest economy slipped to 3.9 points from a revised figure of 4.7 points in its previous reading.

A year ago, the confidence index stood at 7.4 points, and the latest reading marked the lowest level since December 2005, when it dropped to 3.5 points.

“German consumers have now really thrown in the towel,” commented UniCredit Markets analyst Andreas Rees.

Gfk said in a statement that because German inflation was expected to remain stuck around 3.0 percent in coming months, its outlook for consumption growth this year had been revised down to 0.5 percent from a previous 1.0 percent.

Consumers said they were now less inclined to make major purchases, and less optimistic regarding their personal income and the economy in general.

The study questioned around 2,000 German residents and found that “repeated

announcements of new record petrol and diesel prices have compounded consumer fears of a loss of purchasing power.”

But for Rees, “the downturn in consumer sentiment is probably more than the simple loss in purchasing power.

“We think that part of the equation is also the loss of confidence in the future growth outlook,” he said.

Positive points like falling employment and even substantial wage increases have had little impact, GfK found, because the raises were in large part offset by inflation, which was 3.0 percent in Germany in May and a record 3.7 percent for the eurozone as a whole.

On Monday, the Ifo economic institute said German business sentiment had fallen to an 18-month low point in June, owing to high oil prices, weaker economic growth in key markets, tighter credit conditions and the euro’s rise against other major currencies.

ECONOMY

German consumer prices set to rise steeply amid war in Ukraine

Russia's war in Ukraine is slowing down the economy and accelerating inflation in Germany, the Ifo Institute has claimed.

German consumer prices set to rise steeply amid war in Ukraine

According to the Munich-based economics institute, inflation is expected to rise from 5.1 to 6.1 percent in March. This would be the steepest rise in consumer prices since 1982.

Over the past few months, consumers in Germany have already had to battle with huge hikes in energy costs, fuel prices and increases in the price of other everyday commodities.

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With Russia and Ukraine representing major suppliers of wheat and grain, further price rises in the food market are also expected, putting an additional strain on tight incomes. 

At the same time, the ongoing conflict is set to put a dampener on the country’s annual growth forecasts. 

“We only expect growth of between 2.2 and 3.1 percent this year,” Ifo’s head of economic research Timo Wollmershäuser said on Wednesday. 

Due to the increase in the cost of living, consumers in Germany could lose around €6 billion in purchasing power by the end of March alone.

With public life in Germany returning to normal and manufacturers’ order books filling up, a significant rebound in the economy was expected this year. 

But the war “is dampening the economy through significantly higher commodity prices, sanctions, increasing supply bottlenecks for raw materials and intermediate products as well as increased economic uncertainty”, Wollmershäuser said.

Because of the current uncertainly, the Ifo Institute calculated two separate forecasts for the upcoming year.

In the optimistic scenario, the price of oil falls gradually from the current €101 per barrel to €82 by the end of the year, and the price of natural gas falls in parallel.

In the pessimistic scenario, the oil price rises to €140 per barrel by May and only then falls to €122 by the end of the year.

Energy costs have a particularly strong impact on private consumer spending.

They could rise between 3.7 and 5 percent, depending on the developments in Ukraine, sanctions on Russia and the German government’s ability to source its energy. 

On Wednesday, German media reported that the government was in the process of thrashing out an additional set of measures designed to support consumers with their rising energy costs.

The hotly debated measures are expected to be finalised on Wednesday evening and could include increased subsidies, a mobility allowance, a fuel rebate and a child bonus for families. 

READ ALSO: KEY POINTS: Germany’s proposals for future energy price relief

In one piece of positive news, the number of unemployed people in Germany should fall to below 2.3 million, according to the Ifo Institute.

However, short-time work, known as Kurzarbeit in German, is likely to increase significantly in the pessimistic scenario.

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