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German Consumer Confidence Erodes Sharply On War Concerns

Germany’s consumer confidence is set to weaken more than expected in April, hurt significantly by the concerns over the war in Ukraine, results of a closely-watched survey revealed Tuesday. The forward-looking consumer confidence index dropped to -15.5 from a revised -8.5 in March, the market research growth GfK said. Economists had expected a reading of -14. The survey was conducted from March 3 to 14.

The downward trend in the headline index continued and a sharp increase in the propensity to save in March further reinforced it, the agency added. “In February hopes were still high that consumer sentiment would recover significantly with the foreseeable easing of pandemic-related restrictions,” Rolf Burkl, GfK consumer expert, said. “However, the start of the war in Ukraine caused these hopes to vanish into thin air.”

Burkl pointed out that rising uncertainty and sanctions against Russia have caused energy prices in particular to skyrocket, putting a noticeable strain on general consumer sentiment.

The income expectations index of the survey shed 25 points to reach -22.1, which is the lowest value since January 2009, when it was -22.9 in the backdrop of the global financial crisis.

Purchasing power is hurt by the escalating inflation that is mainly driven by higher prices of gas, heating oil and gasoline, GfK said. Citing one of its recent surveys regarding the consequences of the war in Ukraine, GfK said nine out of ten Germans are extremely or very concerned about the sharp rise in prices in the energy sector and around 80 percent expressed concern over prices of groceries.

The economic expectations decreased in March, following two consecutive increases. The indicator lost 33 points to reach -8.9 points, which was lowest since May 2020, during the first Covid-related lockdown, when it was at -10.4 points. Risk factors, including the risk of recession, clearly dwarf the positive impulse to be expected from the easing measures, GfK said. The propensity to buy indicator dropped 3.5 points to -2.1, which was the lowest since April 2020, when it was at -4.6 points.

“A sustainable recovery of the consumer sentiment is only possible with a rapid ceasefire followed by peace negotiations,” Burkl added.

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