German consumers aren’t buying the resilience story

The GfK consumer confidence indicator dropped to its lowest level since May, suggesting that German consumers don’t share the resilience story other leading indicators have been telling us lately.

At least someone is reacting to surging energy prices and interest rates: German consumers. According to the latest GfK consumer confidence indicator, consumer sentiment weakened after a slight rebound last month. Probably due to labour market uncertainty and fears of higher prices, income expectations took a severe hit. Willingness to buy dropped, while willingness to save increased further.

Since the 2022 energy shock, German consumer confidence has sat in deeply negative territory. Against this background, stagnating and sometimes even positive private consumption has been a surprise. In fact, real wage gains and a still-decent labour market seem to have acted as a floor. Looking at past relationships, consumer confidence has probably overstated the gloom and seems to be better at turning points rather than predicting actual private consumption developments. Consequently, today’s data is clearly bad news for the entire economy; not only the absolute level, but also the downward trend doesn’t bode well for private consumption in the months ahead.

All in all, this morning’s disappointing consumer confidence puts the latest improvements in other leading indicators, like the Ifo index and PMIs, into perspective. If anything, the current cyclical rebound has clearly not reached consumers, and with high energy prices, labour market uncertainty and higher interest rates, it is doubtful that it actually will.

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