July 9, 2020, 11:38

German Consumer Sentiment Drops Despite GDP Rebound – Report

German Consumer Sentiment Drops Despite GDP Rebound – Report

Germany is facing the challenge of weakening consumer sentiment moving forward, as international trade woes are seen as jeopardising job security and the stability of the nation’s corporate sector.

Kristian Rouz – A new survey from the Nuremberg-based market research company GfK SE shows a drop in the German consumer confidence heading into July, as Europe’s powerhouse economy is facing a slowdown in exports and growing uncertainty in its manufacturing sector.

GfK questioned some 2,000 Germans, and the results reveal darker sentiment moving forward – which may point to a possible drop in retail sales and overall consumer spending, weighing on the 2Q19 total GDP growth rate.

​This despite the German economy’s rebound in the first quarter; it expanded 0.7 percent year-on-year, driven by a 1.2-percent rise in household consumption, 1.1-percent growth in fixed investment, and a 1-percent rise in exports.

The GfK found that German consumers are increasingly concerned with their job security, as the global economic slowdown could affect export-reliant sectors that employ hundreds of thousands of Germans.

The firm’s consumer sentiment index fell to 9.8 points – a second consecutive decline – from 10.1 points a month prior.

“Whether this will remain the case depends heavily on how income prospects develop in the coming months,” GfK said in a statement. “If the significant loss suffered by this indicator in June turns into a persistent downward trend, it will also be tough for the propensity to buy to maintain its currently excellent level.”

Separately, GfK has revealed an erosion in consumer purchasing power across its major manufacturing and hi-tech hubs, located in former West Germany – such as the state of North Rhine-Westphalia. Meanwhile, the former East Germany appears to be doing better in terms of consumer confidence.

​GfK experts say Germany’s GDP growth is heavily reliant of consumer spending, despite the nation’s strong manufacturing base remain a major source of expansion. However, if household spending drops this quarter, the pace of economic growth could post a significant slowdown.

So far, Germany’s unemployment rate has been among the lowest in Europe, at just 3.2 percent as of April 2019, while wages and overall disposable incomes have grown at a higher rate than inflation – which has, in turn, been tepid across the entire Eurozone for years now.

Ultra-low interest rates at the European Central Bank have also been supportive of consumer spending over the past decade – but the downside of this arrived in the form of rising household indebtedness, which could hinder household spending in the future.

​”So far, the income indicator has been able to benefit from the excellent development of the job market in Germany. But now the voices heralding the end of the employment boom are growing,” Rolf Buerkl of GfK said.

GfK also found the main reason behind the cooling consumer confidence is a slowdown in the growth of disposable incomes. The rapid expansion in German employment might have stalled this year amid international headwinds facing the German corporate sector, experts say.

​However, GfK says the broader picture for the German economy going forward is not all murky. The gradual decline in economic expectations that began in early 2018 appears to have stopped this outgoing month, while the ‘willingness to buy’ sub-indicator actually increased.

In this light, experts say, the German economy could continue to expand at a modest pace despite the trade woes – but a trade deal between the US and the EU could greatly help erase the mounting signs of doom spreading among German households.

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