Commentary Directory

Inflation and Tight Financial Conditions Weigh on the German Consumer

Jacob Hess
August 29, 2023

German economic data continues to point in the same direction, down. The latest GfK Consumer Sentiment report finds that there has been no improvement in consumer sentiment in August and that trend will continue going into the last month of the quarter. The reading for August was slightly above July, up 0.6 pts to -24.5, but that gain will immediately dissipate with a -0.9 pt drop to -25.5. From the GfK commentary: "Since consumer sentiment is likely to remain at a low level in the coming months, the assumption that private consumption will not make a positive contribution to overall economic development this year and will rather be a burden on growth prospects in Germany is confirmed."

From GfK

Some notable trends in the subindexes further outline the weakness of the German economy. The economic expectations index dropped -9.9 pts to the lowest value so far this year at -6.2. However, it’s still more than ten points above a year ago. Similarly, income expectations are worsening with a -6.4 pt decline to -11.5 in August. While the inflation situation has improved, it is still weighing on consumers. The propensity to buy has stagnated at a very low level overall, with no clear trend, since the summer of 2022 thanks to both high prices and tighter financial conditions. Today’s GfK data for August and September combined with the weak Ifo survey last week and the confirmation of stagnation in Q2 likely means that we’re set for a contraction in Q3 2023.