By Ed Frankl
Consumer confidence in Germany worsened for the first time in nine months in July, reflecting a more uncertain climate for household spending, as the country’s economic outlook continues to be bleak after a recession in the winter.
Germany’s forward-looking consumer sentiment index forecasts confidence to tick down to minus 25.4 in July–the first decline since October 2022–from a revised minus 24.4 in June, according to data from market-research group GfK published Wednesday.
The reading upended expectations that the index would improve, to minus 23, according to a forecast from economists polled by The Wall Street Journal.
The news adds further gloom over expectations for the German economy, after June data last week showed the Ifo business-climate index fell for the second month in a row and the composite purchasing managers’ index dipped close to the 50-point mark that represents contraction.
The data, alongside rising interest rates and high inflation, could mean Germany is heading for a third quarter of negative growth, some economists say, after the economy contracted 0.5% in the fourth quarter of 2022, and 0.3% in the first of this year.
“The current development in consumer sentiment indicates that consumers are once again more uncertain,” GfK consumer expert Rolf Buerkl said.
The apprehension to spend was reflected in the indicator showing respondents’ propensity to save increased this month, he added.
GfK uses three sub-indexes for the current month–June–to derive a sentiment figure for the coming month. Both economic and income expectations declined, as households take into account that they will face real income losses this year, which won’t be fully offset by wage increases, GfK said.
However, the third measure, of propensity to buy, rose on the month, though it still remains at a low level, showing that consumption remains weak, according to GfK.
Moreover, private consumption likely won’t make any significant contribution to overall economic development in Germany this year, GfK said.
“Continued high inflation rates, currently at around six percent, are noticeably eroding the purchasing power of households and preventing private consumption from making a positive contribution,” Buerkl added.
German inflation was 6.1% in the latest data May, cooling from 7.2% in April, but high by historical standards, with underlying pressures on household spending still strong.
The European Central Bank increased its key deposit rate to 3.5% from 3.25% earlier in June, while signaling that it had further to go in its efforts to combat inflation, despite the headwinds the squeeze on spending will cause to economic growth.
Write to Ed Frankl at edward.frankl@wsj.com