German consumer confidence deteriorated sharply heading into October as elevated energy costs weighed on household income expectations and encouraged consumers to save rather than spend.
The deterioration adds another pressure point for Europe’s largest economy at a time when higher energy costs are squeezing household purchasing power. European markets were also contending Friday with elevated bond yields and uncertainty surrounding the Middle East.
The consumer-climate index fell to -30.6 from a revised -26.8 in September, substantially weaker than economists had expected.
The deterioration was concentrated in household finances.
The income-expectations index fell sharply to -15.0, while consumers’ willingness to save increased to 21.5, reaching its highest level since the 2008 global financial crisis.
Purchase intentions remained depressed, indicating that households continue to exercise caution over major spending decisions.
The data present another challenge for Germany’s recovery.
Household consumption could provide an important source of economic growth, but higher energy costs are reducing purchasing-power expectations just as monetary conditions remain restrictive.
Economic expectations nevertheless showed modest improvement, suggesting households may see some stabilization in the broader economy even while remaining cautious about their own disposable income.
Markets will watch whether energy prices retreat and whether improving economic expectations eventually translate into stronger household consumption.
