2016.09.2802:49:00UTC+00Gfk German Consumer Climate Weakens on Brexit, Terror Threat

GfK’s consumer sentiment for Germany softened a bit in September to 10.2, whereas the overall consumer climate index for October is projected at 10 points. The economic and income expectations, along with propensity to purchase, both have suffered losses. It might appear that Germans believe that the economy will weaken in the coming few months. This is hinted by the third consecutive decline in economic expectations.

The indicator for the consumer’s economic expectations dropped 1.8 points to 6.8 points in September, the third consecutive fall. In spite of these losses, economic expectations continue to be clearly more than zero, that is above the long-term average of zero points. It appears that the Brexit vote in June is beginning to have an impact on Germany. Economic expectations have continuously dropped in the three months since the referendum. There has been an increase in uncertainty since the announcement of the Brexit vote. This has also resulted in the Ifo Business Climate index to drop in July and August.

Another result is that the projections for the growth of European gross domestic product were slightly downgraded recently.

The regular rises and falls in income expectations continued in September, noted GfK. The indicator dropped by 5.7 points in September after rising in the last month. But, this has just erased some of the noticeable gains of 8.6 points registered in August. Therefore, the income expectations indicator continues to be strong at 52.6 points, above the 50-point mark.

Consumers appear set to be quite optimistic when reflective on the future financial situation. This is because of the stable developments in the labor market, along with the increasing pace of employment. Like the income expectations, propensity to purchase has also dropped a bit in September. The indicator dropped by 4 points to 53.3 points. But the desire to make purchases continues to be quite high and has remained above the 50-point mark.

The overall index points towards 10 points for October. However, despite the small drop, the consumer climate continues to be stable at a strong level. But the present decline shows how the consumer confidence is not entirely immune to the prevailing increase in uncertainty, stated GfK. The uncertainty is being driven by the Brexit vote. However, according to GfK, an increase in real private consumer spending of about 2 percent this year seems achievable and realistic. Therefore, consumption is expected to remain as the main driver of German economic growth.