As the consumer barometer of the German Retail Association (HDE) shows, consumer sentiment among Germans is continuing to deteriorate in May. After plummeting massively following the start of the Russian war in Ukraine, the index is now declining again. This is the sixth month of consecutive declines in the HDE consumer barometer, which has reached a new all-time low. Although the decline in consumer sentiment is much less pronounced than in the previous month, the outlook for private consumption in the coming three months remains gloomy.
German consumers’ propensity to buy falls to a new all-time low, while the propensity to save is little changed compared with the previous month. The ongoing war and the resulting rise in prices influence consumption and spending plans for the coming months. Consumers also expect prices to rise even further. It is, therefore, to be expected that private consumption will develop in a subdued manner depending on the course of the war.
The war in Ukraine is also harming the economic development of Germany. This was already reflected a month earlier in the expectations of companies and consumers and updated economic forecasts. While business assessments have stabilized at a low level, consumers’ economic expectations have declined again. By contrast, consumers’ income expectations remained virtually unchanged from the previous month. However, both consumers’ economic and income expectations are below the previous year’s level.
The development of consumer sentiment is currently dominated by the war, while the pandemic and the infectious disease situation have receded into the background because of relaxed Covid measures. As the further course of the war is uncertain and its economic impact cannot be fully assessed, the gloomy mood among consumers is likely to persist and dampen private consumption in the coming weeks.
