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Economy in Brief

German Consumer Climate Projected to Dip in March
by Robert Brusca  February 23, 2022

GfK's projection of Germany's consumer climate in March finds a drop to -8.1 in the index from -6.7 in February. February had increased slightly from January (-6.9) which had worsened considerably, falling 5.1 points from its December value. The current string of four negative readings follows two positive readings in a row in October and November of last year. In some sense, Germany is having a relapse. The March reading is the weakest reading for consumer climate since May 2021, ten months ago.

The GfK index cratered at -23.1 in May 2020 and had a second downdraft in which it bottomed at a level of -15.5 in February 2021. The German economy has been on the virus rollercoaster, and it looks like the ride is continuing.

Further details on the German climate situation expand on readings for expectations for the economy and for income expectations as well as look at the current buying climate. These readings lag the headline by one month.

The economic situation improved in its most recent observation for February, rising to 24.1 from January's 22.8. The February reading is above its January and December levels, but it is below all readings from May 2021 to November 2021.

Income expectations also for February backed off sharply, falling to 3.9 from January's 16.9. The February reading is below all expectation readings since February 2021. The last three months seem to represent a more striking drop compared to the earlier values.

The buying climate also eroded in February. It fell to 1.4 from January's 5.2. It was also lower in December for that single month and was previously lower for a single month also in January 2012. It has not been lower except for one-off monthly readings since December 2008 that ended a 16-month period of greater weakness during the global financial crisis when the reading was persistently weaker. That means the current propensity to buy reading is at an unusual point of weakness.

The percentile standings for the March headline and the February components tells the story in stark quantitative terms. The headline ranks as lower only 2.5% of the time- that is extremely weak. The economic expectation reading, at its 74.1 percentile, a much more solid position and well above its median. Income expectations, however, are weak at a 32.2 percentile standing placing them in the lower one third among all their historic readings. The propensity to buy at a 27.5 percentile reading also is in the lower one-third of all its historic readings.

German data are somewhat at loose ends as we get to February and March as the IFO index released yesterday, and with more detail today, shows a good deal of variance across sectors. The Markit survey has showed a step down in German manufacturing and a sizeable step up for services in February. The improvement in services is in sync with Germany's infection roll-off but the roll-off is gradual and while services improve in February climate erodes in March.

The outlook for the period three-months ahead (made as of February) in the fresh IFO release shows strength across the board in activity and orders in manufacturing and in orders for retailing at a rank standing in the 90th percentile – extremely strong. The lowest standings in the three-month outlook are from exports with readings in the 55th to 75th percentile on data back to 2002. Apparently, businesses and industry in Germany are more confident than are consumers.

In other European economies whose data only are updated through January, we find some weakening in confidence for Italy, France, and the U.K. Still, Italy's confidence has a 90.2 queue percentile standing, France has a 68.5 percentile standing, and the U.K. has a 28.1 percentile standing.

All four countries are seeing a decline in the rate of infection in February from its January pace. The number of deaths has risen in Germany while it has fallen elsewhere. The death curve is a lagging phenomenon, but the rise in Germany suggests that Germany is still more deeply involved in its infection cycle, and that Italy, France, and the U.K. are in a clear emerging stage. And that would explain why confidence/climate in Germany is weakening. The other three countries are seeing confidence weak and reported for a month in which the virus is still quite active (they report for January) and peaking since for each their daily death country curve begins falling in February, but we do not yet have confidence numbers from February for them let alone March.

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