German Confidence Makes a Minor Rebound, Hovering at Its Third Lowest Reading in Nine Months

The German consumer climate gauge for December 2023 improved slightly to -27.8 from -28.3 in November. Apart from the November reading, the climate reading in December was last weaker in April 2023. From August 2022 to April 2023, climate marked a period in which GfK reading was persistently weaker than it is today, in December. However, apart from this nine-month interval, and the reading for November, there are no other climate readings lower than the current December reading from GfK at any time in the past.

The climate reading for December has a 3.8 percentile standing, which tells us that it has been this week or weaker less than 4% of the time.

Weak components and their momentum The components of the climate reading consist of economic and income expectations, and a propensity to buy measure. These components are available with a one-month lag. In November, the economic expectations indicator improved slightly, rising to -2.3 from October’s -2.4. This continued a string of improvements for economic expectations. Income expectations in November, however, slipped to -16.7 from -15.3 that extended a two-month ongoing decline in that indicator. The propensity to buy in November improved slightly to -15 from -16.3; it has been improving very slightly but consistently in recent months.

Low-ranking component values The ranking of these components remains quite weak. Economic expectations have a queue-standing at their 32.7 percentile in the bottom one-third of their historic queue of readings. Income expectations are much weaker with an 8.7 percentile standing of their queue of data, marking income as in the lower 10% of all readings. The propensity to buy has a 22.4 percentile standing, in the bottom 25th percentile of its historic queue of data. All of these are very weak readings. And while they trail the current December reading for climate in terms of topicality, it's quite clear that the climate ranking is much lower than any of these components and what that tells us is that it's the confluence of weakness among all the components topically that is unusual and is substantially responsible for the extremely weak reading for climate.

The German economy The Bundesbank continues to look for declines in the Germany economy. The current government has just had a setback in which some of its plans to engaging green spending have been flagged by the courts as inconsistent with their budgetary process and therefore monies that they thought they had set aside for their economic agenda are now going to count towards the budget deficit which will cause the administration to have to scramble and reorganize priorities and spending. At the same time, the war between Russia and Ukraine just continues to drag on mercilessly. While it appears that Ukraine is persisting and possibly even making gains against Russia, as Russia is losing huge numbers of troops due to ham handed strategies, the outcome of the war hangs in the balance and Ukraine's dependence on continued arms provision and the aid from its allies remains as important as ever at a time where some of these allies are beginning to engage in grumbling about how expensive it has been to finance this war and how slow the progress now is going.

Consumer confidence elsewhere in Europe We can compare the GfK climate figures to consumer confidence for other European countries. France and the U.K. have the most up-to-date readings, with consumer readings that are available through November, only one month behind the GfK reading. In France, the INSEE measure has moved up in November to a 25.9 percentile standing. In the U.K., consumer confidence has moved up to -24 in November from the level of -30 in October, to a standing at its 27.8 percentile. Readings for confidence in Italy lag and are available only through October. Italian confidence has been easing from August to September to October; that leaves the October reading at 101.6 down from 105.4 in September; still, it has a 57.1 percentile standing. Italy has the strongest standing for consumer confidence among this group of countries, but the U.K. and France have similar weak rankings, and Germany comes in with the weakest readings of all, but with component standings more in line with those of overall confidence readings that we see from France and the U.K.

Summing up The bottom line is that confidence continues to be under a great deal of pressure in Europe and especially in Germany. Since COVID struck, countries have tended to get more of their growth from their respective services sectors. Since Germany is highly industrialized and depends a great deal on trade and since trade has been disrupted by the Russia-Ukraine war, the German economy has been disrupted. Geopolitics also have interfered with German trade that finds former trade partners under various stages of sanctions. The German economy has been hurt by war and geopolitics more than other economies. There's no sign in this month's data of any of that letting up. The consumer sector continues to be under a great deal of pressure. In Europe, Italy is losing traction the fastest while France is gaining traction. But since Italy starts from a base of much stronger confidence while France comes from a base of much weaker confidence, these changes don't seem to amount to much in terms of their impact on the European economy or on policy.