Rising Savings, Falling Spending: German Consumer Sentiment and the ECB’s Next Move
For July, the German GfK Consumer Climate Indicator unexpectedly declined from – 20.9 to -21.8. Economists predicted an increase to -18.9.
According to the June survey,
- Income Expectations fell by 4.3 points to 8.2 points, marking the first decline in five months.
- Willingness to Save increased by 3.2 points to 8.2 points.
- The Willingness to Buy declined by 0.7 points to -13.0 points.
- Consumer hopes for a speedy economic recovery over the next 12 months also waned for the first time in five months. The Economic Indicator slid by 7.3 points to 2.5 points.
Nuremberg Institute for Market Decisions (NIM) consumer expert Rolf Burkl commented on the unexpected decline, saying,
“The interruption of the recent upward trend in consumer sentiment shows that the path out of the consumer slump will be difficult and that setbacks can occur again and again. The slightly higher inflation rate in the country in May is causing more uncertainty among consumers, which is also reflected in the increase in the propensity to save.”
ECB Rate Hike Plans Hinged on Inflation
Sub-components of the Consumer Climate Indicator signaled a likely pullback in consumer spending. The upward trend in Willingness to Save and decline in Willingness to Buy could support a Q3 2024 ECB rate cut.
Nonetheless, consumer price trends across the broader Euro area remain the focal point for the ECB. Sticky Euro area inflation may delay an ECB rate cut until Q4 2024 and impact German consumer sentiment further.
