German consumer morale darkens heading into January
The mood among German consumers deteriorated unexpectedly heading into January, a survey showed on Friday, suggesting that household spending in Europe's largest economy could weaken at the beginning of next year.
The consumer sentiment indicator, published by the Nuremberg-based GfK institute and based on a survey of around 2,000 Germans, edged down to 9.6 from 9.7 in December. A Reuters poll of analysts had predicted an increase to 9.8.
Household spending has turned into a steady and reliable driver of growth in Germany helped by recordhigh employment, inflationbusting pay hikes and historically low borrowing costs, providing a buffer against traderelated problems.
GfK researcher Rolf Buerkl said consumers were more pessimistic about the overall economic growth outlook. They also scaled back their personal income expectations, with GfK's sub-indicator falling to the lowest level in more than six years.
"News about job cuts in some industrial sectors, such as the car industry and automobile suppliers, are leading to less optimistic income expectations," Buerkl said.
Germany's main automobile industry body VDA said earlier this month it excepted global car sales to fall by 5% this year and it warned of more job cuts in 2020 as a result.
The Ifo institute expects the German economy to pick up steam in the fourth quarter, predicting a quarterly growth rate of 0.2% following a 0.1% expansion in the third quarter.
For 2019 as a whole, the government forecast 0.5% growth, which would be the weakest performance since 2013. It predicts a modest rebound with 1.0% growth next year.
Meanwhile, GERMAN Chancellor Angela Merkel has been warned of Berlin's struggling economy being swallowed up by the so-called "zombie effect" by economists.
Christiane von Berg, economist for Northern Europe at the credit insurance company Coface, hailed Germany for batting off fears of a recession in 2019 but at the same time warned the EU member state was not out of the woods yet. She warned of the "zombification" of the German economy, meaning businesses in the country becoming lazy having spent years being propped up or kept going artificially. She said: "In the past few months there have been reports of job cuts and some bankruptcies in the German industry.
According to Coface estimates, the number of bankruptcies this year will be three percent lower than those declared in 2018.
There has also been a 12month decline in the amount of bankruptcies over the past 10 years.
Experts in Germany attribute the falling number of bankruptcies primarily to the zero interest rate policy of the European Central Bank (ECB).
If German banks continue to grant loans too liberally, businesses remain in a market that is completely unviable for the foreseeable future.
The German Institute for Economic Research (IW) admits monetary policy is an important factor in the decline of bankruptcies, adding interest rates are low and that access to credit in Europe is particularly easy for German companies.
It also identified better equity capital for companies was another factor.
Klaus-Heiner Röhl, economist at the IW, said: "Contrary to the criticism that has occasionally been expressed that the sustained economic upswing with extremely low interest rates would have produced zombie companies that are vulnerable in the event of an economic downturn, the average balance sheet quality of companies in Germany is obviously very solid.