German GfK Consumer Climate Shows Gloomy Spending Outlook

Highlights

• German consumer sentiment was in focus this morning and continued to paint a grim picture of the German economy.
• The German GfK Consumer Climate Index increased from -25.4 to -24.4.
• However, the ECB monetary policy decision and all-important ECB press conference will also need consideration alongside US GDP numbers.

It is a busy day on the European economic calendar. This morning, the German economy was in the spotlight again, with consumer sentiment in focus. Deteriorating economic conditions suggested weaker numbers, with sticky inflation keeping the pressure on the ECB to continue to push interest rates higher.

However, the German GfK Consumer Climate increased from -25.4 to -24.4 for August versus a forecasted -24.7.

According to the July survey,

• Income expectations hit the highest level since February 2022, rising 5.5 points to -5.1 points. The GfK attributed the 5.5 points increase to prices rising at a slower pace.
• The propensity to buy indicator increased by just 0.3 points to -14.3. Considering the improvement in income expectations, the modest increase suggests a weak consumer spending outlook.
• Sentiment toward the economy remained unchanged at 3.7 points. The GfK attributed stable sentiment to employment conditions despite the increasing risk of an ECB-fueled Eurozone recession.

EUR/USD Reaction to the German GfK Consumer Climate Index Numbers

Before the consumer sentiment numbers, the EUR/USD fell to a pre-stat low of $1.10773 before rising to a high of $1.11183.

However, in response to the numbers, the EUR/USD increased from $1.10888 to a post-stat high of $1.10939.

This morning, the EUR/USD was up 0.05% to $1.10919.

Up Next

The ECB will deliver its monetary policy decision and the ECB press conference this afternoon.

Economists expect the ECB to lift rates by 25 basis points today. However, there is heightened uncertainty beyond the summer break. While euro-area inflation remains elevated, the latest round of euro-area economic indicators signaled a likely Eurozone recession, which could impact the ECB’s ability to take aggressive measures to tame inflation.

No ECB members are on the calendar to speak before the ECB President Christine Lagarde press conference.

From the US, core durable goods and jobless claims will draw interest. However, prelim Q2 GDP numbers should have more impact. Fed Chair Powell and the markets are betting on a soft landing. Weaker-than-expected GDP numbers could reignite recessionary fears in the wake of the Fed 25-basis point interest rate hike.

While the GDP number will be the focal point, jobless claims numbers should continue reflecting tight labor market conditions. Tight labor market conditions would support consumer confidence and spending, both material to service sector activity. However, tight labor market conditions would leave a September Fed rate hike on the table.