Consumer climate: Sentiment remains subdued

Corona, war, inflation, bank tremors: Overall, the economy is holding up quite well despite multiple crises, even if they leave their mark. How much does that impress consumers?

Mixed: This is how you could summarize the results of the current GfK consumer climate index. Yes, consumer sentiment is increasing for the sixth time in a row. But not nearly as clearly as in the previous months. And consumer sentiment is still at an all-time low, says Rolf Bürkl from GfK, a consumer research company: “We’re seeing a level at the moment that we haven’t seen when we go back to 1980. It’s a What is new is that the mood is so depressed despite the stable employment situation and relatively low unemployment.”

The many crises of the past months and years are spoiling the mood: the corona pandemic with lockdowns, the still unusually high inflation, the war in Ukraine. “That creates a mood of crisis. For every manager and every private household, it’s a situation in which you have to rethink,” states Ulrich Kater, chief economist at Deka-Bank. The bad mood can also be seen from the fact that, according to GfK, the propensity to buy is stagnating at a low level. Despite the good employment situation, there is great uncertainty. Many people refrained from making major purchases in particular.

Hope for good wage agreements

But even with daily shopping, the money is anything but loose. That may come as a surprise, because at the same time, according to GfK, consumers are currently expecting their income to increase. “There are certain hopes that, despite the high inflation, the loss of purchasing power will not be so great because, for example, the tariff increases will be somewhat higher than in previous years,” says GfK expert Bürkl, explaining the apparent contradiction.

However, it is doubtful that this will be able to compensate for the losses in real wages in recent years. Perhaps that’s why GfK’s conclusion is: Consumption, an important pillar of the economy, will fail at least in the first half of the year.

Technical recession not excluded

The German Institute for Economic Research (DIW) – like other economists – assumes that the German economy shrank slightly in the first quarter of the year, which is now drawing to a close. That would be the second quarter in a row a minus. This would put Germany in a recession, at least technically.

Economists are still arguing about whether that will happen or whether Germany will end up narrowly avoiding a recession. But almost everyone sees one thing this way: Despite the energy crisis and inflation, the German economy survived this winter better than feared. And in the second half of the year at the latest, it has good chances of renewed – albeit weak – growth.