Sentiment among German consumers has not been this bad for a long time. People are worried about high energy prices and galloping inflation. And a negative trend also prevails on the stock market.

The energy crisis and inflation in Germany are affecting consumer sentiment. And it is currently at a record low level. The GfK barometer, from the public opinion research institute in Nuremberg, already signals a surprisingly sharp drop of 5.7 percentage points to -42.5 points for October. For the fourth time in a row, the index is declining, and it is currently at the lowest level since the beginning of measuring consumer sentiment in unified Germany in 1991., GfK announced.

Many German households now have to set aside significantly more money for energy, that is, put aside money that will “cover” the noticeably rising heating costs in the winter season. “And that means that people have to save on other expenses, for example new purchases,” says GfK consumer behavior expert Rolf Bürkl. “As a result, the consumer climate has fallen to a new record low.”

The current very high inflation rate of around eight percent is responsible for the significant decline in real incomes, and thus also in the purchasing power of German consumers: “Since it cannot currently be predicted when inflation will noticeably ease, difficult times are coming in the coming months as far as the consumer climate is concerned,” Bürkl warned.

The German Retail Association (HDE) says that retail is already in an awkward situation: “Customers are buying fewer or cheaper things, while at the same time energy prices have exploded for our companies as well,” said HDE director Stefan Genth. “In this situation, in which we have fierce market competition, the formula according to which price increases are simply passed on to our customers does not work.” And that is why, he adds, the federal government must urgently adapt its aid programs for companies overburdened by energy costs – so that retailers also receive appropriate support.

No change in sight

There is a great deal of uncertainty about how long the energy crisis will last, that is, how much everything will ultimately become more expensive, says Jörg Zeuner, chief economist at Union Investment. And as usually happens in uncertain times, consumers are once again activating the “saving reflex,” he adds: “Consumption will face difficult times in the coming winter half-year, even if temperatures are above average and a gas shortage is thus avoided.” Alexander Krüger from the private bank Hauck Aufhäuser Lampe shares a similar view: “A look into one’s own wallet has only further increased consumers’ despair.” The ice age will last, our interlocutor believes: “No change in sentiment is in sight.” He considers it particularly problematic that no light can be seen at the end of the tunnel at all. “The government’s indecisiveness regarding the rapid relief of citizens is becoming increasingly difficult to understand,” Krüger criticizes. German consumers are counting on a recession, this economist adds.

The Institute for Macroeconomics and Economic Research (IMK) of the Hans Böckler Foundation predicts a noticeable decline in private consumption in 2023. Household spending should fall by 2.5 percent due to high inflation – the last time such a significant decline was recorded was in 2020, that is, the first year of the coronavirus pandemic.

Leading economic institutes also assume that Germany will not be able to avoid a recession during the coming winter. Economic activity is slowing due to the energy crisis and a decline in GDP is to be expected, predict the most important institutes that also advise the federal government in Berlin. This information is reported by the Reuters agency, citing several sources familiar with these matters. Because of this, experts have noticeably “cut” their forecasts for economic development from the spring of this year. In 2022, the economic institutes expect GDP growth of only 1.4 percent, and for 2023 – a GDP decline of around 0.4%.

DAX on a downward path

Germany’s most important stock market index (DAX) is on a downward path due to concerns about inflation, interest rate developments, and economic expectations. For the first time since November 2020, the leading German index fell to a level below 12,000 points, which is psychologically significant on the trading floor. The MDax index also fell, as did the EuroStoxx 50, the leading index that combines securities from the eurozone. “Another terrible stock market week is threatening us,” predicts economic analyst Timo Emden. However, in the middle of the week the DAX recovered and again “jumped” to a level above 12 thousand points. Overall, the DAX lost 3% of its value during this week – and in the last two weeks already more than 12%.

Banking sector shares were hit hard, Deutsche Bank shares recorded a loss of more than 7%. The situation is even worse in the steel sector. The reason is a study by the American bank JPMorgan that forecasts business in that branch, that is, the sector’s profitability, very pessimistically. Shares of Germany’s ThyssenKrupp lost 11.4% of their value. And the Salzgitter group had to “swallow” a drop in the value of its shares of almost 14 percent.

Source: dw.com