Consumer Confidence Setback in Germany's Economy

Introduction

Weakening Confidence

According to the latest figures, Germany's consumer-sentiment index is forecasted to decrease to minus 28.1 in November, down from minus 26.7 in October. This disappointing reading falls short of economists' predictions, who anticipated the index to remain at minus 26.7.

Eurozone's Waning Consumer Confidence

The decline in consumer confidence is not exclusive to Germany, as the eurozone as a whole has also witnessed a similar trend. Data published on Monday revealed a third-straight monthly decrease in consumer confidence across the region.

The End of Recovery Hopes

Rolf Buerkl, a consumer expert at NIM, expressed concerns regarding the persisting decline in consumer sentiment: "With the third decline in a row, hopes of a recovery in consumer sentiment this year must finally be laid to rest." Buerkl emphasized that rising food prices are a significant factor contributing to weakening purchasing power among private households, indicating that consumption will not be able to drive the economy forward this year.

Inflation Rates and Economic Outlook in Europe

Despite a slight decrease, inflation in Europe remains a concern as it reached 4.5% in September, well above the European Central Bank's target of 2%. In August, the inflation rate stood at 6.1%. On the other hand, food inflation showed a slowdown, dropping to 7.5% from 9.0% in the previous month.

This week, the European Central Bank is set to hold a meeting where industry experts anticipate that policymakers will maintain the key interest rate at 4.0%. However, it is important to note that income expectations have been affected adversely due to constrained spending, resulting in a decline of 4 points to minus 15.3 points, according to the GfK survey.

Furthermore, the survey highlights a shift in consumer behavior towards saving rather than spending. The propensity to buy is currently at its lowest level since the financial crisis of 2008. This cautious approach indicates a lack of confidence in the economy and a preference for preserving financial resources.

On a more positive note, economic expectations have shown improvement compared to previous months. They currently stand almost 20 points higher than the same period last year. However, this increase is not sufficient to signal a sustainable recovery for Europe's largest economy, as identified by GfK.

It is noteworthy that Germany's economy is projected to contract by 0.4% this year, marking the largest decline among major euro-area economies according to the European Commission's latest forecasts published in September.