FX.co ★ Germany GfK Consumer Sentiment At Historic Low

The war in Ukraine and high inflation took German consumer confidence to a new historic low, survey results from the market research group GfK showed on Wednesday.

The forward-looking consumer sentiment index declined more-than-expected to -26.5 in May from revised -15.7 in April. The expected score was -16.0.

The score remained even below the previous record low seen during the first Covid-19 lockdown in 2020 as considerable increase in the propensity to save intensified the decline.

High inflation dampened consumers' purchasing power. Consumers viewed that the risk for the German economy has increased further, and the danger of a recession is assessed as high.

"The Ukraine war and high inflation have dealt a serious blow to consumer sentiment," GfK consumer expert Rolf B?rkl said. This means that hopes of a recovery as a result of the easing of restrictions caused by the pandemic have finally been dashed.

Economic and income expectations as well as the propensity to buy logged noticeable losses in April, the survey showed.

The increase in energy prices and the uncertainty caused by the war and the sanctions imposed against Russia dampened consumers' income prospects. Berlin has taken measures to reduce the dependence on Russian gas.

Latest reports suggest that Russia stopped gas supplies to some countries in Europe that were backing Ukraine and the state-owned Gazprom is demanding ruble payments from European countries.

The supply disruption is set to push energy prices higher and, worsen the inflationary pressures and hurt economic sentiment further.

The European Central Bank has already signaled that it is planning to raise interest rates later this year.

The economic expectations index fell 7.5 points to -16.4 in April. Likewise, the income expectations indicator plunged 9.2 points to -31.3, the lowest score in almost twenty years.

The propensity to buy also suffered losses for the third time in a row. The indicator was down 8.5 points to -10.6 in April. The reading hit the lowest value in more than 13 years.

The results are an excerpt from the "GfK Consumer Climate MAXX" study and are based on around 2,000 consumer interviews conducted on behalf of the EU Commission.