German Consumer Sentiment Is Expected to Deteriorate Sharply on Inflation, War Concerns

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By Xavier Fontdegloria
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Consumer confidence in Germany is set to worsen sharply in April, falling to a 14-month low, as inflation and the war in Ukraine weigh heavily on households’ expectations about the economy and personal finances.

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Market research group GfK’s forward-looking consumer sentiment index forecasts confidence decreasing to minus 15.5 in April from minus 8.5 in March. The decline, which is broadly in line with economists’ expectations, places the index to its lowest level since February 2021.

“Rising uncertainty and sanctions against Russia have caused energy prices in particular to skyrocket, putting a noticeable strain on general consumer sentiment,” GfK’s consumer expert Rolf Buerkl said.

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In February, hopes were high that consumer sentiment would recover significantly as pandemic-related restrictions eased, but the start of the war in Ukraine dashed these hopes, he said.

GfK uses data from three subindexes from the current month to derive a sentiment figure for the coming month, measuring consumers’ economic expectations, income expectations and propensity to buy.

All three measures registered declines in March, according to the survey.

Germans’ income expectations took a hit, falling to minus 22.1 in March from 3.9 the previous month, the lowest value since January 2009 amid the financial crisis.

“Consumers are seeing their purchasing power melt away as a result of the sharp increase in prices when it comes to gas, heating oil and gasoline,” the report said. Nine out of 10 Germans are extremely or very concerned about the sharp rise in prices in the energy sector, it said.

Expectations for the general economy also deteriorated markedly, to minus 8.9 points in March from 24.1 points in February. “Sanctions, high energy prices, and supply-chain issues have caused the risk of recession to skyrocket,” GfK said.

Propensity to buy fell only slightly over the month, to minus 2.1 in March from 1.4 in February, according to the survey.

The consequences of the war in Ukraine adds to consumers’ concerns about high energy prices, and a sustainable recovery in consumer sentiment is only possible with a rapid ceasefire followed by peace negotiations, Mr. Buerkl said.

“The domestic economy will then also significantly contribute to overall economic development again as a result of declining uncertainty, and the easing of pandemic-related restrictions would also be able to have their positive effect,” he said.

Write to Xavier Fontdegloria at [email protected]

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Credit: www.marketwatch.com /

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