German consumers aren’t buying the resilience story
The latest GfK consumer confidence readings reveal mounting concerns among German consumers, contradicting the prevailing narrative of economic resilience. Per the full note from ING, the index fell to its lowest level since May, signaling weakened sentiment due to ongoing apprehensions about inflation and job stability. With high energy prices and increased interest rates compounding these fears, the outlook for private consumption looks increasingly bleak. As we assess the broader economic landscape, there is a clear disconnect between corporate optimism seen in some leading indicators and consumer apprehension, suggesting potential headwinds for the Eurozone economy.
What the desk is arguing
The desk posits that the decline in the GfK consumer confidence indicator reflects deep-seated concerns among German consumers about the economic outlook. This morning's data indicates that consumer willingness to spend is waning, with expectations for income dropping sharply, which is a clear warning sign for private consumption trends in the near future.
With the GfK index registering its lowest point since May, the implications for economic growth are stark. German consumers are reacting to surging energy costs and interest rate hikes, which have been less of a concern for other economic feedback loops that may be lagging behind consumer sentiment. Today’s figures firmly suggest that the consumer sector remains under pressure, countering the temporary optimism reflected in other indices such as the Ifo and PMI, which remain at odds with the consumer experience.
Where it sits in our coverage
Our consensus target for EUR/USD is 1.075, with a projected range from 1.04 to 1.12. Noteworthy targets from aligned firms include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
This bearish sentiment on consumer confidence aligns with the outlook from jpmorgan, sitting comfortably in the middle of our consensus range, while bofa appears at the lower bound of this spectrum. The desk’s interpretation suggests we may lean towards the downside of this spread given current consumer sentiment dynamics.
How other firms see it
Firms like jpmorgan and others maintain a similar cautious view on the economic outlook, emphasizing the risks stemming from consumer confidence. In contrast, bofa suggests a more optimistic consumer positioning that is not aligning with the latest GfK data.
Consumer sentiment trends will likely influence moves in EUR/USD as well as indicators such as the ECB's monetary policy decisions moving forward, especially amid the backdrop of rising inflation and interest rates affecting spending behavior.
What the calendar says
No significant calendar events are outlined for the coming weeks that would directly affect sentiment or policy direction in Germany, leaving market participants to focus on current consumer trends and expectations as they unfold without imminent data catalysts in the immediate horizon.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01German consumer confidence has dropped, indicating rising pessimism amid economic uncertainty.
- 02High energy prices and increasing interest rates are significant factors contributing to weakened consumer sentiment.
- 03The disconnect between consumer behavior and leading economic indicators suggests potential headwinds for the Eurozone.
- 04Current consensus targets reflect cautious outlooks from various banks, with **jpmorgan** at 1.10 and **bofa** at 1.04.
Market implications
Watch for levels around 1.075 in EUR/USD, particularly in light of the consumer sentiment trends. A failure to stabilize around this level could suggest further downward pressure, potentially influenced by shifts in market expectations regarding ECB policy.
Risks to this view
A reversal of the bearish view could occur if unexpected positive developments in consumer confidence create renewed spending momentum. Furthermore, significant changes in energy prices or a stronger labor market report could shift sentiment dramatically.
Older quick take Quick take Published 07:20 Germany German consumers aren’t buying the resilience story The GfK consumer confidence indicator dropped to its lowest level since May, suggesting that German consumers don’t share the resilience story other leading indicators have been telling us lately This morning’s disappointing consumer confidence puts the latest improvements in Germany's other leading indicators into perspective At least someone is reacting to surging energy prices and interest rates: German consumers. According to the latest GfK consumer confidence indicator, consumer sentiment weakened after a slight rebound last month. Probably due to labour market uncertainty and fears of higher prices, income expectations took a severe hit.
Willingness to buy dropped, while willingness to save increased further. Since the 2022 energy shock, German consumer confidence has sat in deeply negative territory. Against this background, stagnating and sometimes even positive private consumption has been a surprise.
In fact, real wage gains and a still-decent labour market seem to have acted as a floor. Looking at past relationships, consumer confidence has probably overstated the gloom and seems to be better at turning points rather than predicting actual private consumption developments. Consequently, today’s data is clearly bad news for the entire economy; not only the absolute level, but also the downward trend doesn’t bode well for private consumption in the months ahead.
All in all, this morning’s disappointing consumer confidence puts the latest improvements in other leading indicators, like the Ifo index and PMIs, into perspective. If anything, the current cyclical rebound has clearly not reached consumers, and with high energy prices, labour market uncertainty and higher interest rates, it is doubtful that it actually will. Germany GDP Eurozone Consumer sentiment Content Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives.
The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Author Carsten Brzeski Global Head of Macro Older quick take
Sources & References
How we cover this story