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Economy in Brief

German Consumer Climate Falls and Weakness Follows in France and Italy
by Robert Brusca  November 29, 2021

After two months of logging net positive readings, the look-ahead GfK climate reading slipped back into negative territory at -1.6 in December.

Meanwhile, the rest of the data in the table lag one month that includes the components for the GfK survey as well as the French, Italian and U.K. confidence metrics.

While the GfK reading improved to 1.0 in November from 0.4 in October, its component readings slipped in November with the economic gauge falling to 31.0 from 46.6, income expectations falling to 12.9 from 23.3 and the buying climate eroding to 9.7 from 19.4. In Italy consumer confidence fell; in France it ticked lower; in the U.K. while the headline gauge remained as a net negative reading, the confidence measure improved month-to-month rising to -14 from -17.

The standing for the GfK headline shows it at the 11% mark in December. The November standings for the components are moderate to low with the economy index the strongest at the 77.5 percentile. Income expectations are at their 41.9 percentile and the buying propensity at a 30.9 percentile standing. The economic gauge is moderate and firm, but the other readings are weak, and both are below their historic medians.

The economic situation in context
Germany is undergoing a political transition as its years of being led by Angela Merkel have come to a close. Germany also is facing a new wave of infections from the coronavirus and now there is a new variant apparently coming out of South Africa that appears to be even more dangerous. If this new variant proves to be the risk as some fear, the future for growth in Europe and in the U.S. will be in jeopardy.

Today markets are in turmoil over the fear of the new virus with the EU president saying she is trying to trigger a plan to block flights from Southern Africa where the new variant appears to have started. Still, there are other areas reporting this variant: Belgium and Israel- Israel has the most vaccinated population in the world.

Confidence in perspective
So, the results from the current crop of consumer confidence and climate data may not be telling. We have another Twilight Zone situation with a new virus circulating in addition of a Delta variant wave that already has kicked up. It means that the future is up for grabs. Today stock markets are melting, and oil prices have fallen sharply much more in reaction to the virus concerns and an instant reappraisal of growth prospects. Many of the themes that have been in play are stopped in their tracks over what is happening in markets today. Bond yields are back down and the drop in oil prices is set to help reduce some of the pressures on inflation that has intensified and lingered. If the new variant spreads and is threatening, growth could be under cut and that could take central banks off the tightening path and tapering paths they have already set out along. In short, with just the flick of a mutation, the virus has upended major developing economic themes. And it is not yet over.

On a longer view, since August the GfK index and components are weaker. France is little changed while Italy is slightly stronger. The U.K. is weaker on balance on such a timeline.

As far as confidence trends are concerned, the flare up in Covid and the threat of the new variant is catching these economies during a moment of weakness. It is too early for the new variant to have affected any economic variables we are observing today; this news is now beginning to impact markets. But the prospects still are not good.

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