German Consumer Confidence Tumbles as Food, Oil Prices Soar | Business| Economy and finance news from a German perspective | DW | 24.06.2008
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German Consumer Confidence Tumbles as Food, Oil Prices Soar

German consumer confidence dropped to a 30-month low in June after rising food and energy prices began to eat away at household purchasing power, a study released by the GfK marketing research group Tuesday showed.

Shopping cart filled with food

Rising food prices and spiraling energy costs have shaken German consumers

The latest in a series of surveys on German economic confidence showed a drop in consumer sentiment to 3.9 points -- nearly half of the index's 7.4 points as recorded a year ago. The figure marked the lowest level since December 2005, when consumer sentiment dropped to 3.5 points.

"Rising fears of inflation, combined with the sustained crisis in the financial markets, a strong euro and a weaker global economy mean that consumers are not very upbeat in their assessments of future economic growth," the GfK said.

Throwing in the towel

Man on ladder changing numbers on gas station sign

At more than 1.40 per liter, petrol is putting a dent in pocketbooks

The study of approximately 2,000 German residents found that "repeated announcements of new record petrol and diesel prices have compounded consumer fears of a loss of purchasing power."

"German consumers have now really thrown in the towel," said UniCredit Markets analyst Andreas Rees.

Those consumers surveyed said that they were less optimistic about their personal income and about the economy in general. The worries, combined with a growing threat of inflation, have made consumers less inclined to make major purchases.

Even substantial wage increases have had little impact on consumer sentiment, the GfK found, because the raises were partly offset by inflation. German inflation was expected to remain at around 3.0 percent in coming months, lower than the record 3.7 percent for the eurozone as a whole.

A bleak outlook across Europe

A plate of cookies in front of a laptop

Purchases of big ticket items are expected to decline

The news follows on the heels of a two-and-half year low in business confidence, according to the closely watched Ifo index. Business confidence in Europe's largest economy tumbled due to high oil prices, weaker economic growth in key markets, tighter credit conditions and the euro's rise against other major currencies.

Both surveys could also set the stage for the release this week of a series of major economic sentiment surveys, which are likely to point to a bleaker outlook taking shape across Europe.

Business confidence in Belgium, which is seen by economists as a key barometer of the economic mood in the 15-member eurozone, fell sharply in June to minus 5.9 from minus 1.9 in May, the country's national bank said Monday.

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