Germany: Consumer confidence declines as debt woes in Greece persist
July 26, 2011
Consumer confidence deteriorated, reflecting consumers' rising concerns about the sovereign debt woes in Greece and the associated risks of contagion within the region. In August, the forward-looking consumer confidence indicator published by the GfK Institute fell to 5.4 points in August from a revised 5.5 points in July (initially reported: 5.7 points), undershooting private sector analysts' expectations that had seen the index falling to 5.6 points. The August outturn represented the lowest level in consumer sentiment since November 2010. Together with the overall consumer confidence indicator, which refers to August, the GfK Institute also publishes three sub-indicators (economic expectations, income expectations and buying propensity), which refer to July. According to the Institute, all sub-indices deteriorated over the previous month, in particular economic expectations, which dropped by 5.7 points to 44.6 points and more than reversed the 4.2 points gained in June. The reading reflected consumers' rising uncertainty about the economic outlook as a result of ongoing sovereign debt woes and precarious fiscal situation in Greece. Income expectations followed suit. While the sub-index climbed to 44.6 points in June, it fell by 10.0 points in July (34.6 points), reflecting consumers' rising fears about the negative impact of an additional bailout payment as well as increasing concerns about a further increase in energy prices. The propensity to buy inched down by 1.0 points to 34.1 points in July, remaining relatively stable compared to the previous month. The reading continued to benefit from consumers' positive assessment about the labour market. In July, the unemployment rate inched up to 7.0% from 6.9% in June, which had marked the lowest level since records began in 1991. According to the GFK Institute, solid economic growth and a healthy labour market allow consumers' to plan for larger purchases in the months ahead.
Author: Ricardo Aceves, Senior Economist