Germany: Consumer sentiment expected to drop in May
The GfK consumer climate index is expected to fall to minus 8.8 in May from April’s minus 6.1. The anticipated deterioration in sentiment comes on the heels of rising Covid-19 infections and associated tighter lockdown measures.
The headline reading was underpinned by backward-looking data for April, which is released at the same time and showed that economic as well as income expectations softened. The less upbeat views on the economy are driven by the lagged recovery in household spending, weighing on the economy as a whole. Income expectations have been shattered by the tighter lockdown rules, evaporating hopes of a swift end to the short-term work scheme amid an anticipated reopening of non-essential businesses. More positively, propensity to buy rose notably in the month despite the ongoing health crisis. A very high household savings rate highlights that consumers have ample finances available for consumption. If the lockdown is relaxed, this could unleash pent up demand.
Rolf Bürkl, consumer expert at GfK, commented:
“The recovery of the domestic economy will continue to lag due to the third wave. As in 2020, consumption will again not be a pillar of the economy this year. In the years before the pandemic, private consumer spending had still made an important contribution to the growth of the German economy.”
That said, household spending should pick up steam in the second half of the year due to an expected easing of restrictive measures amid greater inoculation. Oliver Rakau, chief German economist at Oxford Economics, added:
“The rebound in contact-intensive services by mid-2021, combined with lift from excess savings, will see consumption grow by 1.9% in 2021 after a 6.3% drop in 2020, before stronger recovery of some 8% in 2022.”