Germany: Modest drop in consumer confidence expected in March
February 28, 2018
The forward-looking consumer confidence indicator published by the GfK Group for March decreased slightly to 10.8 points, down from 11.0 for February. The result came in below market expectations of a slimmer decrease in consumer sentiment but remained elevated nonetheless. Political uncertainty stemming from the prolonged inability to form a stable government following the 24 September federal elections might have influenced consumer sentiment negatively, resulting in a loss of the gains made in the prior month.
The expected moderation in consumer confidence results from less optimistic views across the board, as consumer confidence in February decreased. Economic expectations worsened in the month, but consumers still held optimistic views on the economy, which is running at a solid pace. Strong labor market fundamentals also boosted optimism. Income expectations decreased moderately but remained at an elevated level; the backdrop of sound labor market dynamics reinforced consumers’ positive income expectations. Consumers’ propensity to buy also dropped, reflecting the decline in optimism on the economy and income expectations.
A coalition agreement between the Social Democrats (SPD) and the Christian Democrats (CDU) hangs in the balance, with the results of a vote among SPD members to be announced on 4 March. The formation of a stable government five months after the federal elections would likely lift consumer sentiment. Additional risks beyond the domestic political turmoil to the consumer climate stem from U.S trade policies and the slow progress on Brexit.
Author: Jan Lammersen, Economist