German Consumer Sentiment Collapses to Record Low due to Inflation and Energy Crisis

World » EU | September 28, 2022, Wednesday // 11:14
Bulgaria: German Consumer Sentiment Collapses to Record Low due to Inflation and Energy Crisis @Capital.com

German consumer sentiment for October continued to collapse to a new record low for the fourth straight month as high inflation and soaring energy bills show no signs of decreasing.

This is shown by the results of the latest survey by the German GfK Institute among about 2,000 consumers, conducted between September 1 and 12, 2022.

The GfK index of consumer sentiment for next month (for October 2022) fell to -42.5 points from -36.8 points in September and on average forecasts for a more subdued deterioration to -39.0 points. This is a new all-time low for the consumer confidence index in the leading European economy for the fourth consecutive month (the lowest level since 1991, when the survey was conducted) and already well below the previous record lows reached in the spring of 2020. , when the coronavirus pandemic was at its beginning and when strict lockdowns were introduced as a measure to contain the contagion.

The main reason for the sharp decline in consumer attitudes is the reduction of income expectations in the current month (September) to a record low, which also leads to a decline in the propensity to buy and to a deterioration in economic expectations.

"The current very high inflation rates of almost 8% lead to large real income losses among consumers and thus to a significantly reduced purchasing power," commented Rolf Burkl, an expert at the GfK institute, and adds:

"Many households are currently forced to spend significantly more on energy or set aside money for significantly higher heating bills. In view of this, they have to cover other costs, such as new purchases. This is causing consumer sentiment to worsen to a new record low".

As it is currently impossible to predict when inflation will improve significantly again, consumer sentiment will face difficult times in the coming months. Shrinking real consumer spending will exacerbate recessionary trends in the German economy.

According to GfK, consumer confidence will only be able to recover noticeably and sustainably if inflation falls. On the one hand, this requires the continuation of the restrictive monetary policy of the European Central Bank (the policy of raising interest rates), which, however, also carries the risk of exacerbating recessionary trends. On the other hand, a solution must be found to one of the main reasons for the high prices, namely the war in Ukraine.

GfK index of consumer attitudes in Germany

GfK uses three sub-indices - for economic expectations, income expectations and propensity to shop - for the current month (in this case for the month of September) to determine sentiment for the next month (for October).

The index measuring current month (September) earnings expectations fell sharply to -67.7 points from -45.3 points in August, hitting a new low since this GfK survey began in 1991.

Propensity to buy fell for the eighth consecutive month, with the corresponding GfK sub-index falling to -19.5 points in September from -15.7 points in August, its lowest level since October 2008, when it was in effect the last major global financial and economic crisis. The propensity to buy is currently under pressure due to higher energy prices, which require significantly more spending. These additional financial resources are not available to households for other expenses, such as for the so-called "big purchases" (of expensive goods).

After a short pause in the previous month, the economic expectations of German consumers continued their downward trend in September. The corresponding sub-index of the GfK institute fell in the current month to -21.9 from -17.6 points in August, reaching the lowest level since May 2009, when the global financial and economic crisis was still in force.

Many consumers are increasingly concerned that the German economy could slip into recession, which is also partly due to weaker consumption. Both companies and private households are concerned about the development of energy prices, which have recently seen a solid increase. Some companies that rely on high energy consumption have already reduced their production. Further production constraints are also threatened by continued supply difficulties due to disruption of supply chains.

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