Germany: Modest drop in consumer confidence expected for May
The forward-looking consumer confidence indicator released by the GfK Group for May showed an expected moderation in sentiment, which nevertheless remains high. It is expected that consumer confidence will decrease marginally to 10.8 points, down from the prior month’s 10.9 points. Consumer sentiment is being weighed down by increasing geopolitical tensions in the Syrian conflict; recent fears of escalation increased consumers’ concern.
Backward-looking indicators for the month of April—released as part of the consumer confidence indicator—showed a sufficiently broad-based moderation in sentiment, with two of the three indicators coming in lower than the prior month. Economic expectations suffered the biggest setback and fed into decreased income expectations. Consumers’ view on the economic outlook also suffered from increasing geopolitical risks and protectionist tendencies in the U.S., which further weighed on consumers’ outlook for the German economy. Domestic developments, however, continued to be positive: Unemployment remained at record low levels, boding well for the domestic economy.
Despite decreased economic expectations lowering income expectations slightly, consumers’ income expectations remained elevated. This was reinforced by sound labor market dynamics and muted inflation, improving consumers’ purchasing power. These labor market dynamics in combination with low interest rates supported an increase in consumers’ propensity to buy in April.