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German consumer morale drops as recession fears spread, GfK says

German consumer morale drops as recession fears spread, GfK says
FILE PHOTO: Shoppers look for goods in a Karstadt hot deal department store in Frankfurt/Oder October 24, 2014. REUTERS/Fabrizio Bensch -
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Fabrizio Bensch(Reuters)
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BERLIN (Reuters) – German consumer morale worsened for the third month in a row heading into August as a global economic downturn, trade disputes and Brexit uncertainty fuel worker fears of losing their jobs and their income, a survey showed on Tuesday.

The GfK consumer sentiment indicator, based on a survey of about 2,000 Germans, edged down to 9.7 from 9.8 a month earlier. It was the lowest reading since April 2017 and in line with market expectations.

Household spending and construction have become important drivers of growth in Europe’s largest economy as its exports falter. Domestic demand is boosted by record-high employment, above-inflation pay increases and low borrowing costs.

But the continued drop in consumer confidence signals that a slump in Germany’s export-dependent manufacturing is now creeping into other sectors of the economy.

“The trade war with the United States, ongoing Brexit discussions and the global economic slowdown continue to drive fears of a recession,” GfK researcher Rolf Buerkl said.

Consumers with jobs in export-driven sectors in particular, such as the car industry and their suppliers, are affected the most, he said.

The GfK sub-indicator measuring consumers’ economic expectations dropped to -3.7, falling below its average of zero points for the first time since March 2016 and hitting the lowest level since November 2015.

The propensity to buy as measured by the GfK also deteriorated to reach its lowest in nearly four years.

“The primary threat to consumer confidence is the persistently increasing fear of job losses,” Buerkl said. Household spending could weaken in coming months if the trend continues, he said.

Income expectations recovered after a drop in the previous month, suggesting consumers still count on further pay increases in coming months, GfK said.

The better reading partly reflects higher pensioners’ income after the coalition government approved a proposal to lift public pension payouts by 3.2% in western Germany and by 3.9% in eastern Germany from July.

(Reporting by Michael Nienaber,)

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