Germany: Consumer sentiment to remain pessimistic in July despite strong rise
June 25, 2020
Consumer confidence is expected to recover further from the Covid-19 shock at the opening of the third quarter; however, sentiment is forecast to remain pessimistic. The forward-looking GfK Consumer Climate Index is projected to rise from June’s minus 18.6 to minus 9.6 in July—the third lowest value ever recorded in the history of the index.
The expected uptick reflected healthier backward-looking data for June, which is released at the same time and underpins the July estimate. Economic expectations returned to positive territory for the first time in four months and marked the highest level since January 2019. The notable swing is due to the government’s strong fiscal response to the Covid-19 crisis, with stimulus now amounting to roughly EUR 1.2 trillion (around 35% of 2019 GDP). By extension, income expectations improved markedly and also returned to positive territory. This comes despite increasing short-time work and unemployment, depressing incomes. Given the above, propensity to consume rose as well.
According to Rolf Bürkl, GfK consumer expert: "The extensive support provided by the economic stimulus packages, such as the announcement of a temporary reduction in value-added tax (VAT), is certainly a contributing factor [behind improved consumer sentiment]. Provided that retailers and manufacturers also pass these reductions on to consumers, it can be assumed that one or two planned purchases will instead be made in the second half of 2020, thereby supporting consumption this year."
Author: Jan Lammersen, Economist