German Consumer Sentiment To Improve In August: GfK

German consumer confidence for August improved as cooling inflation boosted income expectations of households, survey data published by the market research group GfK showed on Thursday.

The consumer sentiment index rose to -24.4 from a revised -25.2 in July. The score was seen at -24.7.

Only income expectations contributed to the rise in consumer sentiment, GfK consumer expert Rolf Burkl said.

“The main reason for the waning pessimism is the hope of declining inflation rates,” Burkl added.

“This means that the chances that the consumer climate will be able to resume its recovery course have improved somewhat.”

However, Burkl said the level will remain low in the coming months and private consumption will not be able to make any positive contribution to overall economic development.

Income expectations improved moderately in July to hit the highest level since the outbreak of the Ukraine war in February 2022, the survey showed. The corresponding index rose 5.5 points to -5.1.

The improvement suggests that households have become more optimistic due to the fact that prices are rising less quickly. Nonetheless, GfK cautioned that the income indicator will remain burdened over the months ahead by the inflation-related loss of purchasing power.

The propensity-to-buy indicator posted a marginal growth in July. The index rose 0.3 points to -14.3. Continuing uncertainty among consumers led to the stagnation of propensity to consume.

Consumers were more cautious with their planned purchases in the face of high food and energy prices, the ongoing war in Ukraine and concerns about rising costs from renovation measures for real estate as result of the heating law, GfK said.

At the same time, the slowdown in economic confidence halted in July. The economic expectations index held steady at 3.7 points.

GfK said the stable employment conditions remained as a key pillar of the economy. Nonetheless, the monetary policy stance is causing uncertainty, the market research group noted.

The European Central Bank is expected to hike its benchmark rates by 25 basis points later today after the U.S. Federal Reserve hiked its key rate on Wednesday.

Destatis is scheduled to publish the second quarter GDP data on July 28. The economy had contracted 0.3 percent in the first quarter and 0.5 percent in the fourth quarter and thus entered a technical recession.

The recent surveys and economic indicators suggest that the economy is likely to shrink again in the second quarter.

In the latest World Economic Outlook, the International Monetary Fund projected the German economy to shrink 0.3 percent this year, before rebounding 1.3 percent in 2024.

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