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Consumers in Germany 'spending less' as recession drags on

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Consumers in Germany 'spending less' as recession drags on
A person walks past a shop in Lilienthal, Lower Saxony. Photo: picture alliance/dpa | Sina Schuldt

German consumers are feeling significantly more pessimistic heading into February, a key survey showed Friday, as the downturn in Europe's largest economy drags on.

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Pollster GfK said its forward-looking survey of around 2,000 people plunged to minus 29.7 points, a drop of 4.3 points compared with a month earlier.

Analysts surveyed by financial data firm FactSet had expected another rise in consumer sentiment after two months of increases.

"Crises and wars, as well as persistently high inflation are unsettling consumers and thus preventing an improvement in consumer sentiment," said GfK, which published the survey with the Nuremberg Institute for Market Decisions (NIM).

The survey found that respondents were more downbeat about the prospects for the economy as well as their own income expectations for the months ahead.

Consumers were also "noticeably" more likely than a month earlier to save money and put off making large purchases.

The new year has started off "very disappointingly" for German consumers, GfK added.

READ ALSO: Tired' - Germany economy needs reform, says minister

'Stuck in recession'

The gloomy mood was echoed by the closely-watched Ifo survey on Thursday, which found that German business morale worsened more than expected in January.

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The Ifo institute's closely watched confidence barometer, based on a survey of around 9,000 companies, slid to 85.2 points in the first month of the year, after falling to 86.3 points in December.

The New Year drop disappointed analysts surveyed by financial data firm FactSet, who had expected a gentle increase in the indicator.

"The German economy is stuck in recession," said Ifo president Clemens Fuest, with companies assessing the current situation and the outlook as worse than a month before.

READ ALSO: Why is Germany stuck in recession - and how long might it last?

Germany has yet to string together two consecutive quarters of negative growth -- the measure for a technical recession -- but the economy still only managed to muddle through the last 12 months.

The German economy shrank by 0.3 percent in 2023, battered by costly energy, higher interest rates and weaker foreign demand.

"The economic start to the new year was a disappointment," said Fritzi Koehler-Geib, chief economist at public lender KfW.

The economic outlook, however, still had some glimmer of hope, Koehler-Geib said.

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"With inflationary pressure easing and real wages rising, key negative factors should ease over the course of this year and a recovery driven primarily by consumption should set in," she said.

After a year in which Germany was at the back of the pack among the world's major advanced economies, 2024 should see the traditional industrial powerhouse eke out "around half a percent" of growth, she predicted.

Morale in manufacturing, the backbone of the German economy, was improved to start the year, although the overall mood "remained pessimistic", according to Ifo.

On the other side of the ledger, the mood in services as well as trade and construction clouded further.

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