Germany: Consumer sentiment expected to deteriorate further in July
June 28, 2022
The GfK consumer climate index is forecast to drop from minus 26.2 in June to an all-time low of minus 27.4 in July.
The expected improvement in sentiment came on backward-looking data for June, which is released simultaneously and underpins the June expectation. Economic expectations worsened notably in June as consumers consider the risk of a recession to be significant; supply-chain woes and the war in Ukraine hinder Germany’s industrial capacity, while household spending is set to be affected by elevated inflation. Income expectations deteriorated in unison, falling to a two-decade low. High inflation is eating into consumers’ pockets and “casting a shadow over consumer sentiment”. Consumers are unlikely to use excess savings to purchase items. Moreover, propensity to buy also suffered a setback at the hands of inflation.
Analysts at the EIU commented:
“The Russian invasion will drag further on growth in 2022. Germany is among the countries most exposed to Russian energy imports […] and the EU's decision to phase out two-thirds of Russian gas this year will therefore lead to a significant spike in German energy costs, particularly in the industrial sector. Other spiking commodity prices will also weigh on purchasing power, and hence on private consumption. In addition, even as supply chains in Europe stabilise, pandemic-related lockdowns in China will drag on German industrial production further, while uncertainty about the domestic economic impact of EU sanctions on Russia will damage business confidence.”
Author: Jan Lammersen, Economist