German Confidence Sinks as Propensity to Save Rises

German consumer confidence showed signs of weakening further this morning, slipping to -26.5 pts from last month’s -25.6 pt print. This came lower than market expectations and is indicative of the headwinds that German consumers continue to face in light of monetary tightening, elevated inflation and economic downturn. While this was the lowest the GfK Consumer Confidence index had hit since April, the survey showed that income expectations were stabilising.

Nevertheless, despite income expectations stabilising, the report noted that high levels of inflation – particularly in relation to food prices – are continuing to negatively impact the purchasing power of private households. As such, GFK noted that the propensity to buy remains at a very low level, with the index at -16.4, hovering roughly around its lowest level since the 2008 GFC. With the propensity to buy falling, the propensity to save has risen, climbing 8pts to its highest level since April 2011, as households across Germany look to insulate themselves from any further economic headwinds down the line.

Sticking with savings, more generally, it’s worth noting that Germany’s private sector gross savings levels are also monitored closely given their relatively high levels. For example, between 2010 and 2019 private sector gross savings averaged 25% as a percentage of GDP, well above the US’ 22% and the UK’s 15%.

When looking at saving’s rate in relation to households, in March 2023, EUROSTAT recorded that it had risen marginally to 20.03%. To give this some context, the same survey showed Italy at 9.64%, Slovenia at 12.93% and France at 17.83%. Germany thus topped the chart and came well above the eurozone average of 14.16%.

Citing concerns around inflation, the GFK report argued that “to significantly improve domestic demand, it is absolutely necessary that the inflation rate is brought back to a tolerable level. For the Euro-countries, the European Central Bank is aiming for a rate of around 2 percent. It is not yet possible to predict when this rate will be reached.”

All eyes now turn to Eurozone consumer confidence, released tomorrow at 1000.