| 19 April 2024, Friday |

COVID-19 threatens to knock away Germany’s last pillar of growth

A spike in coronavirus infections in Germany is dragging on consumer sentiment in Europe’s largest economy, depressing company forecasts during the holiday shopping season and threatening to derail the country’s only remaining source of growth.

The GfK institute said on Thursday that its consumer sentiment index, based on a poll of over 2,000 Germans, had fallen to -1.6 points heading into December, down from a corrected 1.0 point a month earlier.

The December figure was the lowest since June, and it was lower than the -0.5 decline predicted by Reuters.

The poll was followed by detailed GDP statistics, which revealed that household spending was the only driver of a weaker-than-expected third-quarter economic increase, more than compensating a reduction in firm investments and state consumption over the summer.

According to the Federal Statistics Office, Europe’s largest economy’s GDP increased by 1.7 percent quarter on quarter in adjusted terms from July to September. This was less than the 1.8 percent flash estimate issued last month.

German economy slowed from an upwardly revised 2% gain from April to June, according to the figures. In the first three months of the year, the economy dropped by 1.9 percent year on year.

A 6.2 percent increase in consumer expenditure from the previous three months added 3 percentage points to the third-quarter growth rate.

“This is related to the service sector’s catch-up impact. Restaurants, bars, and the hotel business profited the most “Thomas Gitzel, VP Bank Group analyst, stated.

However, Gitzel warned that ongoing supply constraints in manufacturing were slowing overall development, which might be reflected in lower third-quarter investment activity by enterprises in machinery and buildings.

State expenditure also decreased in the third quarter, lowering the reported GDP number even more.

A surge in new coronavirus infections in recent weeks now threatens to derail Germany’s last remaining pillar of growth in the fourth quarter.

“The pandemic’s ramifications are producing a type of stop-and-go expansion,” Gitzel explained.

According to GfK economist Rolf Buerkl, the fourth wave of the COVID-19 pandemic, with infection rates fast growing and hospitals exceeding capacity limitations, is raising concerns about more restrictions for stores and restaurants.

Inflation rates of more than 4% were also harming consumers’ purchasing power, he added.

“All of this is depressing the business prospects for the forthcoming Christmas shopping season,” said Buerkl.

Consumers’ expectations for their own income and the economy’s progress have both weakened. This resulted in a nine-month low in the tendency to buy.

  • Reuters