Growing wave of Omicron sees German consumer confidence tumble
Consumer confidence in Germany decreased noticeably in December, according to a closely-watched survey released on Friday, with both economic and income expectations falling significantly, along with the propensity to buy.
According to the GfK Consumer Sentiment Study, the economic outlook among consumers clouded over noticeably at the end of the year, with the indicator dropping 13.9 points to 17.1.
It marked the third decrease in a row, with interrupted supply chains particularly causing “serious problems” for a number of companies.
The survey said the lack of primary products, such as semiconductors, was leading to a slowdown or even complete standstill in production, which had a knock-on effect on the sentiment of employees in the form of short-time working.
For the third time in a row, income expectations suffered “noticeable” losses, with the indicator dropping by six points in December, to 6.9 points.
GfK said income sentiment had as a result lost more than 30 points in the last three months, which still represented an increase of around three points compared to the same period of the previous year.
Rising prices for energy and food were also weakening the purchasing power of consumers’ incomes, with the risk of a wage-price spiral also in play, given unions were demanding “noticeable” wage increases to compensate for significantly rising prices.
The survey said the propensity to buy was also being affected by the general downturn, with consumer sentiment losing 8.9 points, dropping to 0.8 points.
That marked the lowest value since January, when it was at zero, and when compared with the previous year, the decline has accelerated to just under 36 points.
In addition to inflation, GfK said consumer sentiment was being impacted particularly by Covid-related restrictions.
It said that restrictions on large parts of brick-and-mortar retail was reducing the desire to go shopping, while consumers who were neither vaccinated nor recovered were “breaking away” completely.
“Consumer sentiment continues to be under a lot of pressure from two sides as the year draws to a close,” said GfK consumer expert Rolf Bürkl.
“High case numbers due to the fourth wave of the Corona pandemic with further restrictions, as well as significantly increased prices, are putting more and more pressure on consumer sentiment.”
Bürkl said that above all, the rule requiring customers to be either fully vaccinated or have recovered, applying to large parts of the retail sector, had dealt a “heavy blow” to holiday trading.
“The outlook for the beginning of next year is also muted against the backdrop of the rapid spread of the Omicron variant.”
Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, said the most recent surge in virus cases, which started as a Delta wave but was now morphing into an Omicron wave, is “biting hard” on sentiment in the euro area’s largest economy.
“The leap in virus cases and hospitalisations already have forced the governments to impose restrictions, which will weigh on services and retail in the fourth quarter," Vistesen explained.
“We suspect consumer behaviour is changing too, irrespective of restrictions, in light of the jump in ICU occupancy in the past month.
“The government will convene later today to discuss new measures, and we remain confident that further restrictions will be adopted, though we are less certain whether they will come this side of Christmas.”
Vistesen said the good news amid the misery was that the economy “almost surely” would be much more resilient to a resurgence in Covid compared to previous waves.
“We think the economy will expand by 0.4% in the fourth quarter, before grinding to a near halt in the first quarter, with GDP rising by just 0.1%.
“We then look for a sharp rebound in the second quarter as the virus and restrictions receded.
“In short, this time around, a GDP contraction will be averted, we hope.”