German Confidence Stuck in a Low Rut Since May; Economic Sentiment Is the Worst Since December 2022

The GfK survey of the consumer climate in Germany’s economy weakened in September and has held to a narrow range of values since May 2023. German climate hit its lows in the cycle between May 2022 to April 2023 reaching negative values and the GfK headline was as low as -42.8, logging three straight months with a -40 (or greater) negative value for the headline. However, that super-weak stretch came between October and December of 2022. Then, from January 2023 through April, the numbers repaired to reside in the range around a -30 reading. But since May 2023, readings of around -25 have held sway and have been relatively steady in this survey.

Climate components Economic expectations, like other components in the GfK survey, lagged by a month; its most recent value is for August 2023 at -6.2; it's the weakest reading since December 2022. Income expectations also slipped in August, falling to -11.5 in August from -5.1 in July. Income expectations were last weaker in March 2023. The assessment of the propensity to buy has also slipped, falling to -17 in August from -14.3 in July; it was last weaker in February 2023. Clearly, the German economy has slipped into another weak patch at a time it is already quite weak.

Graphic tale of German consumer climate erosion The graph of the GfK climate measure shows that prior to the onset of COVID, the German economy had been pumping out very steady positive readings for confidence. And then with the development of Covid, confidence/climate fell sharply, recovered, waffled, and struggled back to weigh in logging several small positive readings before the end of 2021. After that, it’s more serious nosedive. We can see that economic expectations had fallen ahead of the arrival of Covid, and we're not worsened dramatically by Covid itself; economic expectations improved after Covid struck and we're rebounding to substantially higher readings than they had seen- even in the five years before Covid struck. With the invasion of Ukraine by Russia, the economic survey for Germany collapsed and it has been waffling, low, with weak monthly responses ever since.

Weak percentile standings The queue percentile standing for the climate gauge is in the lower 5% of its historic queue of values. Economic expectations reside in their lower 26-percentile, income expectations are in their lower 15-percentile and the propensity to buy is at its lower 19th percentile. All of these are unambiguously low readings, in or very near the lower quartile of their respective distributions of observations. Some stand quite low within that lower quartile. The overall climate gauge has the lowest standing of all. It also is the freshest observation and the only one for the month of September.

Other Europe The table also includes assessments for Italy, France, and the United Kingdom; these are less up-to-date than the GfK reading for Germany. For Italy, the most recent observation is for July. For France and the U.K., the most recent observations are for August. Italian consumer confidence has a 74-percentile standing and it slipped in July to 106.7 from 108.6 in June. In France, the August reading for conference slipped to 84.9 from July’s 85.3 as confidence logged a 14-percentile standing. U.K. confidence improved to a -25 reading in August from a -30 reading in July; there, confidence has a 26.7 percentile standing, another weak reading. European economies are struggling, and this is reflected in uneven consumer confidence assessments. Manufacturing is under pressure. There is still high inflation, as central banks are raising interest rates. Concerns over the still roaring war between Ukraine and Russia are still rife. These conditions have not changed in a number of months and the consumer confidence readings continue to be impaired by these conditions.