German consumer confidence improves, but economic recovery ‘bumpy’

LONDON (ICIS)–Consumer confidence in Germany improved in May but the country’s economic recovery remains bumpy, with no significant GDP growth expected in Q2, according to the latest reports by research groups on Wednesday.

• Consumer confidence improves
• Industrial economy continues to struggle
• May core inflation flat at 3.0% year-on-year pace

CONSUMER CONFIDENCE
Although consumers remain pessimistic overall, confidence continued to pick up in May, Nuremberg-based market research firm GfK said.

Income expectations rose in May, the inclination to save declined, and consumers’ economic expectations improved compared with April, GfK said.

Lower inflation rates combined with a noticeable increase in wages and salaries, were boosting consumers’ purchasing power, the group said.

Nevertheless, uncertainty among consumers remains “pronounced”, prompting them to delay larger purchases, the group said.

The GfK consumer climate index for Germany rose from -27.3 points in April to -24.0 points in May, and GfK is currently forecasting that the index will improve further to -20.9 in June. A minus value indicates consumer pessimism.

The GfK index is based on monthly interviews with about 2,000 consumers. The May interviews were conducted from 2-13 May.

INFLATION
Meanwhile, core inflation, as measured by the consumer price index (CPI), is expected at a 3.0% year-on-year pace in May, unchanged from April, according to an initial estimate by the country’s federal statistics agency on Wednesday.

Core inflation excludes volatile energy and food prices.

The headline CPI is estimated to gain 0.1% month on month in May and run at a 2.4% year-on-year pace (April: 2.2%).

Analysts at German regional state bank NordLB said that inflation pressures remained “stubborn” in services.

However, the latest inflation data out of Germany were no obstacle to an expected interest rate cut by the European Central Bank (ECB) next month, the analysts said.

ECONOMY
Economic research group DIW Berlin said on Wednesday that Germany’s economic recovery remained “bumpy”, with no significant acceleration of GDP growth expected in the second quarter.

In the first quarter, GDP grew 0.2% from the 2023 fourth quarter.

The main positive for Germany is that the global economy is “surprisingly robust”, despite high interest rates, continued high inflation, and geopolitical uncertainties, DIW said.

A stronger global economy supports German exports.

Domestically, higher wages and salaries, moderating inflation and expected interest rate cuts should translate into a slow increase of demand this year, DIW said.

However, Germany’s industrial producers have yet to find a way out of the slump, although there were “signs” that a recovery in the industrial economy could get under way in the second half of the year, DIW said.

The DIW economic barometer for Germany fell from 92.9 points in April to 86.1 in May – well below the neutral 100-point mark which indicates average economic growth.

MANUFACTURING CLIMATE IMPROVES
Meanwhile, another indicator, the ifo business climate index, remained unchanged at 89.3 points in May, Munich-based ifo reported.

In manufacturing, the business climate improved for a third consecutive month as companies were considerably more satisfied with their current business and their outlook for the coming months was less pessimistic than in April, ifo said.

The manufacturing order backlog, however, continued to decline, the group said.

The ifo index is based on about 9,000 monthly survey responses from businesses in manufacturing, services, trade and construction.

Germany chemical producers’ trade group VCI expects the country’s chemical production (excluding pharmaceuticals) to rise 5.0% in 2024, which would come after a 10.4% decline in 2023.

Focus article by Stefan Baumgarten

Please also visit Macroeconomics: Impact on Chemicals.

Thumbnail photo of Germany’s economic affairs minister and vice-chancellor Robert Habeck: source: German government