German sentiment unexpectedly dips as recovery stalls

A closely followed gauge of consumer sentiment in Germany unexpectedly fell further into negative territory, declining for the first time in five months.

The GfK's forward-looking Consumer Confidence Survey for July fell to -21.8 from a downwardly revised -21.0 the month before, missing economists' estimates for an improvement to -18.9.

Consumers' willingness to save rose b 3.2 points over the month to 8.2, while the willingness to buy fell 0.7 points to -13, which the GfK said was largely due to rising prices.

"If private households have to spend more on food and energy, there is a lack in the financial resources for larger purchases. In addition, the missing planning security means that people are more likely to build up reserves for emergencies or similar, which are therefore also not available for consumption," the survey said.

Meanwhile, the future outlook was also weak, with income expectations sub-index dropping by 4.3 points to 8.2 and economy prospects sinking 7.3 points to 2.5.

"The interruption of the recent upward trend in consumer sentiment shows that the road out of the sluggish consumption will be difficult and there can always be setbacks," said Rolf Buerkl, consumer expert at the Nuremberg Institute for Market Decisions (NIM).

"For a sustained recovery in consumer sentiment, consumers need – in addition to the existing real income growth – planning security, which is particularly necessary for larger household purchases. And this security will only return if the upward pressure on prices is further dampened and if consumers are shown clear future prospects."