After several months of an upward trend, the recovery in consumer sentiment stalled in July. This is the result of the current consumption barometer of the German Retail Association (HDE). After the index had risen for five months in a row, it is now falling again. Although consumers are somewhat more pessimistic about the coming weeks and months, they are still more optimistic than they were a year ago.
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Just last month, a slight shift from saving to consumption was observed. Although consumers still do not plan to reduce their savings efforts, the savings rate is expected to remain quite high. Compared to the previous month, the propensity to buy, which is particularly relevant for the retail trade, has decreased. This suggests a rather subdued development of private consumption in the coming months and dampens expectations of an imminent recovery.
Consumers' view of the further economic development has also dimmed. They do not share the growing optimism of the latest economic forecasts. Rather, they are somewhat more pessimistic than in the previous month. Consumers' own income expectations are also declining. The expectation that their income situation will not improve is likely one reason for the decline in the propensity to buy.
The recovery in consumer sentiment experienced a setback in July for the first time in months. This decline could mark the beginning of a negative trend or simply a brief pause in a sustained uptrend. As of today, this cannot be clearly determined. However, it is evident that consumer optimism in Germany remains fragile. Therefore, it may take longer than previously assumed before private consumption noticeably recovers. Consequently, consumption is unlikely to provide a growth impetus for the economy as a whole in the near term.
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