Germany: High consumer sentiment expected to level off at the end of the second quarter
The forward-looking consumer confidence indicator released by the GfK Group showed a further expected easing of consumer sentiment in June, although sentiment should remain elevated. Consumer confidence is expected to moderate marginally from 10.8 points in May to 10.7 points in June. GfK noted that recent geopolitical developments did not have a particularly large impact on the figures.
Backward-looking sentiment indicators for the month of May, which are released along with the consumer confidence indicator, showed that economic expectations were stable at the prior month’s level, despite an escalation in U.S.-Iran tensions following U.S. President Donald Trump’s decision on 8 May to withdraw his country from the nuclear deal. Despite the stable reading, the trend in economic expectations since the start of 2018 shows that consumers still expect economic momentum to moderate in Germany. This outlook on the German economy has been backed up so far this year, following a stronger-than-expected moderation in economic growth in the first quarter of the year.
Notwithstanding the expected ongoing moderation, consumers’ income expectations increased over the prior month in May. Their views were underpinned by robust economic fundamentals, positive labor market developments—such as record-low unemployment and collective bargaining agreements pointing to solid wage growth—and muted inflationary pressures. On a less positive note, consumers’ propensity to buy fell in May; it remained elevated, however, on the back of a healthy labor market and mild inflation.