German GfK Climate Takes Modest Step Back After Bounce

German consumer climate as measured by the GfK index in July has taken a step back to -21.8 from a reading of -21 in June. However, the step up in June to -21 from -24 in May remains largely in place. The GfK climate index has been climbing, but it remains in substantially weakened condition with a queue- or count-percentile ranking at 9.8, indicating that it has been weaker than this only about 9.8% of the time.

The components of the GfK index lag and are available only through June. However, through June economic and income expectations readings weakened while the propensity to buy took a small step backward moving more deeply into negative territory. Economic expectations fell back to 2.5 in June from 9.8 in May while the income expectations reading fell to 8.2 from 12.5 in May. The propensity to buy retreated to -13 in June from -12.3 in May.

The components show economic expectations rank at their 42.6 percentile, still below their historic median. Income expectations are at a ranking of 43.0, a percentile standing also below its historic median (queue standing medians occur at a ranking of 50). The propensity to buy has the weakest standing among components at its 24.3 percentile.

Recap/round up Climate reached its low point in this cycle at -41.9 in November 2022. Income expectations bottomed out at -67.7 in September 2022. The low point for economic expectations arrived in October 2022 at a reading of -22.2. The buying climate low was at -19.5 in September 2022. Since hitting those lows, the buying climate has remained flat in a narrow negative corridor (-12.3 to -19.5). Income expectations moved up to a range of (-20 to -5) early 2023 to early 2024 then in April 2024 income expectations moved to a positive range around the value of +10. Economic expectations moved higher to positive values in February 2023 through July 2023 then dipped to hover as low as -6 for a period of eight-months. Economic expectations have come back to positive readings over the past two months.

What see is a set of readings that have moved up in stages and still have some upward trend in play, but with a relatively modest uptrend. Readings are still weak in this range. The headline for climate was ‘stuck’ at a reading near +10 for the longest time right through the great recession period then was taken down by Covid. Economic and income expectations were steady in a band from 40 to 60 before they were taken down by Covid. All the GfK components rallied to positive readings before Ukraine was invaded by Russia, but they also had begun to lose ground ahead of the actual invasion. After February 2022, when Russia invaded, all series weakened substantially and fell sharply. What we observe now is the lingering recovery from that episode as the war drags on.

Elsewhere in Europe Confidence readings elsewhere in Europe are up to date through May or June. The United Kingdom and France are up-to-date through June with readings that rank in their 35th-40th percentile range. Italy’s most recent reading is May; it has a 76.2 percentile standing.

Inflation progress has slowed across Europe. Some recent German data have revealed backtracking. The European elections showed gains by the right and those gains have fostered snap election diversions in the U.K. and in France, most notably. The economic and political landscape may be shifting in Europe. It is a time of change.