Inflation weighs on mood
Consumer climate in Germany “more gloomy than ever”
06/28/2022, 08:42 am
The increased cost of living in Germany is having a severe impact on consumer sentiment: the consumer climate is worse than it has ever been since the relevant data was collected. In order to raise the mood in the long term, the war must be ended and inflation reduced.
The consumer climate in Germany has fallen to a record low due to the consequences of the Ukraine war. The consumer research company GfK determined that the consumer climate in July fell by more than 27 points compared to the previous month. “The ongoing war in Ukraine and disrupted supply chains are causing energy and food prices in particular to explode and making the consumer climate more gloomy than ever,” explained GfK consumer expert Rolf Bürkl.
Above all, the almost eight percent increase in the cost of living depressed the mood, he said. Purchasing power is melting away. The hope that the savings accumulated during the pandemic would be converted into purchases will probably not be fulfilled. “If private households have to pay significantly more for energy and food, there are correspondingly fewer financial resources available, especially for larger purchases,” says a GfK statement.
Indicators drop significantly
As a result, the domestic economy will also suffer in the coming months. According to GfK, the Germans’ dwindling desire to buy can be expressed in figures as follows: “The indicator (for the propensity to buy – note) loses 2.6 points and now shows -13.7 points. A lower value was last recorded at -20.1 points measured during the financial and economic crisis in October 2008.”
Income expectations also fell significantly in June, so the increase measured in the previous month turned out to be “a short breather”. “The indicator loses 9.8 points and falls to -33.5 points. This is the lowest value for almost 20 years. In December 2002, -35.5 points were measured. In a year-on-year comparison, income sentiment even shows a minus of almost 68 points out.”
Consumers still see a great risk that the German economy could slip into recession. Supply chain problems and the Ukraine war are currently hampering production in Germany, according to GfK. In addition, due to high inflation, private consumption, which is an important pillar of economic growth, is in danger of failing. Bürkl called on the European Central Bank to adopt a moderate monetary policy. Inflation must be brought down. However, the economy should not be stalled by too large jumps in interest rates.