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Tuesday, May 24, 2022

Consumer Confidence Falls Sharply Due to Ukraine War and Rising Prices

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The war in Ukraine and the significant increase in energy and food prices are having a severe impact on the spending mood of German consumers. Therefore, the consumer climate determined by the GfK market research institute will drop seven points to minus 15.5 points in April, as GfK announced on Tuesday. In March, Germans’ income prospects fell to their lowest level since January 2009 during the financial crisis.

GfK expert Rolf Bürkl explained that consumers are seeing their purchasing power vanish as a result of sharply rising gas, heating oil and petrol prices. According to a survey, nine out of ten Germans were very or very worried about the sharp rise in prices. When it comes to food, the proportion of stakeholders is 80 percent.

“There can only be a lasting recovery in the consumer climate if there is a quick ceasefire followed by peace negotiations,” Bürkl said. Then, the national economy will once again make a significant contribution to the overall economic development due to the drop in uncertainty, “and the relaxation of restrictions caused by the pandemic could also have a positive effect.”

As well as consumers’ income expectations, their economic expectations also fell. They see growing dangers for the German economy, Bürkl explained. Sanctions, high energy prices and disrupted supply chains have increased the risk of a recession by leaps and bounds. These risk factors “clearly overshadow” the positive impulses that can be expected from the easing of the coronavirus.

The propensity to buy among Germans initially declined only slightly. But Bürkl was pessimistic: “The price of gasoline in particular, as an important signal price, plays an important role in this context, as it is continuously monitored by consumers in everyday life and can react accordingly immediately.”

For its flagship consumer climate studies, GfK conducts monthly interviews with around 2,000 consumers about their economic expectations, income expectations and propensity to buy. Consumption is considered an important pillar of economic development in Germany.

The consumer climate index had hovered around ten points for years before the outbreak of the corona pandemic. With the beginning of the Corona crisis, it fell sharply. In November 2021, the value had reached 0.9 points; after that, it fell again due to the fourth wave of corona.

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