German Consumer Confidence Remains in a Deep Funk

Germany’s GfK climate measure continued to improve in April, but its improvement was only a gain of about one point on an index that remains severely weak. The climate index in April has been this week or weaker only 3.1% of the time since its inception. Even though there is now a string of six months in which consumer climate has been improving, these improvements are so small as to make the story, still a story about how weak conditions remain rather than about how there's a string of improvement underway.

The components for the climate index are made available to us with a one-month lag; we are looking at economic expectations, income expectations, and the propensity to buy in terms of values as of March. In March, economic expectations stepped back to 3.7 from a February value of 6; still the 3.7 reading was well above the January reading of -0.6 and the December reading of -10.3. The economic ranking has made a significant improvement and currently has a 44.1 percentile standing. That means that economic expectations have been this weak or weaker only about 44% of the time and they've been higher only about 56% of the time. The economic reading is closing in on a neutral reading which would occur at a rank or count percentile standing of 50%.

Income expectations improved slightly to -24.3 in March from -27.3 in February. Income expectations have been improving regularly: in December, for example, income expectations had a value of -43.4. Income expectations currently have a 4.3 percentile standing. That rank standing means that the income expectation reading has been this weak or weaker only 4.3% of the time.

The propensity to buy improved very slightly in March, rising to -17 from February’s -17.3. It improved in February compared to January; however, the current reading level is below December 2022 when the value was -16.3. The count or rank percentile standing for the propensity to buy is still weak at 19.3% indicating that this propensity has been this week or weaker about 19% of the time. That is roughly a bottom one-fifth standing.

Other Europe The table also presents some comparative readings for Italy, France, and the United Kingdom. The count or rank standing for Italy is at its 68.8 percentile. For France, the standing is at the 1.6 percentile. For the U.K., it's at the 5.9 percentile mark. Italy has a relatively robust ranking for consumer or household confidence at 68.8%. It has been higher only about 32% of the time. As for France and the U.K., the readings there have been lower rarely - on the order of less than 2% of the time for France and about 6% of the time for the U.K. In terms of month-to-month changes, Italy saw another increase in March, France saw a slight decline, and the U.K. saw a slight improvement. Compared March 2023 to December 2022, the Italian reading is at 105.1 compared to 102.5; the French reading is at 81.5, lower than December’s 82.4; the U.K.’s -36 reading in March is an improvement from its -42 reading in December.

Except for Italy, there seems to be weakness all around. In Germany, the climate is weak and the components of the climate index are weak although there is evidence that the economic measure has been creeping up from its worst levels.

Europe is still beset with problems. The Russia-Ukraine war is still in full swing. Inflation is still too high. Interest rates continue to be raised to combat that. Now there are banking sector problems of an unknown magnitude as well. We are going to have to keep an eye on banking globally to see what the impact of this recent crisis will be. The crisis seems to stem from a sharp increase in interest rates at a time that banks had been buying a lot of government securities, largely because private credit demand had gone so flat.