Consumer confidence hits year’s low

German consumer sentiment has been hit by the transatlantic debt crisis and fears of a new recession, falling to its lowest level since late last year, the GfK research institute said Thursday.

Consumer confidence hits year's low
Photo: DPA

GfK said its index of household confidence for September was 5.2 points, the lowest figure since November 2010. GfK also revised down its August reading to 5.3 points from the initial 5.4 points.

That was the sixth consecutive decrease and was in line with an average of analysts forecasts compiled by Dow Jones Newswires and recent other data all showing the Germany economy, Europe’s biggest, beginning to slow.

“The worsening of the international debt crisis and rising fears of a return to recession for the global economy have clearly left their mark on the economic optimism of Germans,” the statement released by the institute said.

GfK noted however that shoppers’ willingness to buy has improved once again, even though they think the economy and their own incomes will worsen in the coming months.

Economy Minister Philipp Rösler noted the dip in consumer confidence but insisted that it remained “robust.” He added in a statement that “household confidence will remain a pillar of growth in the second half” of the year.

Berenberg Bank senior economist Christian Schulz was modestly upbeat about the latest data as well, noting that as the GfK index remained above 5.0 points it was still doing better than in any of the three previous years.

“Consumer confidence is one of the less reliable leading indicators of growth in Germany but the fact that it is decreasing at a moderate pace, and that purchasing intentions remain firm, gives reassurance that a buyers strike is not in the cards,” Schulz said.

GfK also publishes sub-indices which refer to the current month and its economic expectations index plunged to 13.4 points from 44.6 points in July. Personal income expectations were moderately lower.

The consumer outlook was confirmed moreover on Wednesday by the business

sentiment index released by the Ifo institute, GfK said.

The Ifo index hit a 14-month low in August following its sharpest drop since 2008, a clear sign that Europe’s biggest economy is faltering. Data released by the federal statistics office has shown that the economy grew by just 0.1 percent in the second quarter of 2011, well below the first-quarter figure of 1.3 percent.

The central bank and government officials nonetheless expect growth overall of around 3.0 percent this year.


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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.


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.