Recession catches up with consumers

Recession catches up with consumers
Photo: DPA
The recession is catching up with German consumers, causing their confidence has stagnated following three straight months of gradually growing optimism, a poll released on Monday showed.

The outlook index from the GfK institute for Europe’s biggest economy remained at 2.1 points for January, after an initial value of 2.2 points for December was revised lower by 0.1 points.

“Reduced production, cuts in working hours and announcements of potential redundancies are increasingly leading to consumers feeling themselves to be personally affected by the crisis,” a GfK statement said.

Falling inflation and strong pay rise agreements had helped consumer sentiment resist the worsening economic situation until now, but with the labour market poised for a downturn, shoppers’ moods are growing darker. And even as it remained steady for January, the overall index was well below the 4.7 value posted in December 2007.

“All in all, the tug of war between declining inflation and rising unemployment fears keeps the consumer climate subdued well below its long-term average of around 10,” UniCredit Markets economist Alexander Koch said.

A breakdown of the poll showed that consumer’s expectations regarding their personal income had fallen sharply from the previous month, as car makers and other industrial groups announced production suspensions and the elimination of temporary posts.

“For the first time after four consecutive rises, December has seen a perceptible decline in income expectations,” GfK said, as that sub index fell 8.5 points to minus 15.4 points.

The German Economy Ministry is also more pessimistic, with a senior official saying last week that the German economy could contract by up to 3.0 percent in 2009.

Business cycle expectations, which are not taken into account in GfK’s headline index, continued their descent to minus 32.4 points, the lowest level since March 1993, Koch noted.

A slight increase was nonetheless posted by GfK’s sub index that measures consumers’ propensity to make purchases, which edged up 0.4 points, though it remained in negative territory at minus 6.3 points, well below its long term average of zero.

“The better-than-feared holiday shopping season will probably dampen but not prevent another negative quarter in private spending in the fourth quarter,” Koch said.

GfK noted that “the rate of inflation is likely to remain low and increase German consumer purchasing power.

“How the consumer climate will develop in the coming year is contingent to a great extent on the degree to which the recession impacts the job market,” it concluded.

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