COVID-19 threatens to topple Germany’s last growth pillar

People are seen in a supermarket after the borders reopened, amid the coronavirus disease (COVID-19) outbreak, at the Rhein Center shopping center in Weil am Rhein, Germany, June 15, 2020. REUTERS/Arnd Wiegmann

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  • GfK consumer confidence index falls towards December
  • Survey dampens growth outlook for last quarter
  • Detailed GDP data shows weaker-than-expected growth in the third quarter
  • Business investment is falling due to supply chain problems
  • Household spending already the only German growth engine

BERLIN, Nov. 25 (Reuters) – A spate of coronavirus infections in Germany is weighing on consumer morale in Europe’s largest economy, dampening business prospects in the Christmas shopping season and threatening to kick out the last remaining pillar of growth.

The GfK Institute said on Thursday that the consumer confidence index, based on a survey of about 2,000 Germans, fell to -1.6 points by December, from a revised 1.0 point a month earlier.

The December reading was the lowest since June and compared with a Reuters forecast for a smaller drop to -0.5.

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The survey was followed by detailed gross domestic product data showing that household spending was the sole driver of a weaker-than-expected economic expansion in the third quarter, which more than offset a fall in business investment and government consumption over the summer.

According to the Federal Statistical Office, the gross domestic product of Europe’s largest economy grew by 1.7% quarter on quarter from July to September in adjusted terms. That lagged a flash estimate of 1.8% published last month.

The data pointed to a slowdown in German growth from an upwardly revised expansion of 2% from April to June. The economy shrank by 1.9% over the quarter in the first three months of the year.

A 6.2% increase in consumer spending in July-September over the previous three months contributed 3 percentage points to the overall growth rate in the third quarter.

“This is due to catching-up effects in the services sector. Restaurants, bars and the hotel sector in particular benefited,” said Thomas Gitzel, analyst at VP Bank Group.

But Gitzel added that ongoing supply bottlenecks in the manufacturing sector held back overall growth, as reflected in weaker investment activity from machinery and building companies in the third quarter.

Government spending also fell during the quarter, pushing the overall GDP figure further down.

A jump in new coronavirus infections in recent weeks now threatens to kick Germany’s last remaining pillar of growth in the final quarter.

“The effects of the pandemic are causing a kind of stop-and-go growth,” Gitzel said.

GfK economist Rolf Buerkl said the fourth wave of the COVID-19 pandemic, with infection rates rising rapidly and hospitals reaching capacity limits, raised concerns that more restrictions on shops and restaurants would follow.

Inflation rates above 4% also hurt consumer purchasing power, he said.

“Together, all of this is dampening the business outlook for the coming Christmas shopping season,” Buerkl said.

Consumer expectations regarding their personal income and the development of the economy both deteriorated. This pushed willingness to buy to a nine-month low.

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Reporting by Michael Nienaber, editing by Maria Sheahan, Catherine Evans and Timothy Heritage

Our standards: The Thomson Reuters Trust Principles.

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