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Germans downbeat about the prospects for an early economic recovery

A small German national flag waves in front of the central train station in Frankfurt, Germany, on a rainy Wednesday, June 19, 2024. (AP Photo/Michael Probst)
A small German national flag waves in front of the central train station in Frankfurt, Germany, on a rainy Wednesday, June 19, 2024. (AP Photo/Michael Probst) Copyright Michael Probst/Copyright 2024 The AP. All rights reserved
Copyright Michael Probst/Copyright 2024 The AP. All rights reserved
By Indrabati Lahiri
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Consumers in Germany are pessimistic and have revealed that they were likely to focus more on saving, and expected to make fewer large purchases in July.

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The German GfK Consumer Climate Indicator for July was released on Wednesday morning. It came in at -21.8, a sharp drop from June’s -21.0, according to data published jointly by the GfK Group and the Nuremberg Institute for Market Decisions (NIM). This was also significantly below analyst expectations of -18.9, and is the first fall in five months. 

Income expectations for July were considerably lower at 8.2, versus 12.5 in June, with economic prospects also plunging to 2.5 from 9.8. This was quite a reversal from the last four months, when both these indicators had been on the increase.

Consumers also revealed that they were likely to save more, with the tendency to save indicator increasing to 8.2 in July from 5.0 in the previous month. Perhaps not unsurprisingly, the propensity to buy or make large purchases also stayed weak, falling to -13.0, down from -12.3. 

Rolf Buerkl, head of consumer climate at NIM said on their website, “The interruption of the recent upward trend in consumer sentiment shows that the road out of the sluggish consumption will be difficult and there can always be setbacks.

“The slightly higher inflation rate in Germany in May is clearly causing more uncertainty among consumers again, which is also reflected in the increase in the willingness to save. For a sustained recovery in consumer sentiment, consumers need- in addition to the existing real income growth- planning security, which is particularly necessary for larger household purchases. 

“And this security will only return if the upward pressure on prices is further dampened and if consumers are shown clear future prospects. This also means that the government must quickly and clearly communicate the burdens and reliefs people will face as a result of the upcoming budget discussions. Then, the noticeable real income increases can be prevailed and consumers are willing to spend more.” 

Germany economy shows signs of life

Although German consumers are still understandably wary, given several months of higher interest rates, soaring inflation and a shaky economic situation, the Bundesbank’s recent May report highlights that the German economy may be on the mend.  

This is mainly due to weather conditions improving, which has had a major impact on the construction sector. According to the May monthly report, “Growth was recorded in the construction sector, in particular, but also in industry and probably in services as well in the first quarter of 2024. 

“This was partly due to favourable weather conditions for construction activity. The previous quarter had seen weather detrimental to construction, by contrast, producing the major swing now seen in construction.” 

The German energy-intensive sectors also saw an uptick, with production increasing considerably in the last few months, as energy prices ease. The German labour market is also strong, with wage growth expected to continue at a robust rate in the foreseeable future. 

However, sluggish inflation remains a concern, coming down at a slower-than-expected rate, leading to increased fears about whether the European Central Bank (ECB) will be able to stick to its current rate-cutting path. 

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