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War Knocks French, German Consumer Morale Back More Than Expected

France and Germany saw bigger than expected drops in consumer confidence this month as government measures to help with rising inflation and fuel costs offered little relief in the wake of Russia's invasion of Ukraine, surveys showed on Tuesday.

The crumbling of consumer morale in the euro zone's two biggest economies shattered hopes for a bounce back after COVID-19 restrictions were eased.

"In February, hopes were still high that consumer sentiment would recover with the easing of pandemic-related restrictions. However, the war in Ukraine caused these hopes to vanish into thin air," GfK consumer expert Rolf Buerkl said in a statement.

Consumer Sentiment Index

In Germany, the GfK institute said its consumer sentiment index, based on a survey of around 2,000 people, tumbled to -15.5 points heading into April from a revised -8.5 points a month earlier and the lowest since February 2021.

Economists polled by Reuters had on average expected the index to drop to -14.0.

In France, the INSEE official stats agency said its consumer confidence index fell to 91 points from 97 in February, falling short of economists' expectations in a Reuters poll for 94.

The result, the lowest since February 2021, flew in the face of an improving trend usually observed ahead of previous presidential elections when optimism runs high a new political order will translate into improved standards of living.

Read More: Grocery Inflation Hits Highest Level In Ten Years In UK: Kantar

With French voters due to head to the polls next month, the government has put together a package of measures worth €25 billion ($27 billion) to soften the pain of high energy prices and inflation.

But that did little to ease inflation fears with the proportion of households expecting inflation to increase jumping 50 points to the highest level since INSEE's survey began in 1972.

As part of the government measures, France has capped increases in gas and power prices, made one-off anti-inflation payouts to low-income households and offered a rebate on fuel prices.

In Germany, the ruling coalition agreed last week a second package of measures in as many months to give people some relief from soaring power, heating and fuel costs.

Under the €17 billion package, German workers and families will receive extra public cash, a tax cut on petrol and cut-price public transport tickets.

Deteriorating Consumer Confidence

The deteriorating consumer confidence is far from limited to France and Germany.

Based on a flash estimate last Wednesday, euro zone sentiment collapsed in March to 18.7 points, the lowest level since the start of the COVID-19 crisis in April and May 2020.

Italy, the euro zone's third-largest economy, also saw a bigger than expected decline in consumer confidence, the national statistics office said last week.

In Belgium, the Ukraine war caused the steepest decline in consumer confidence since records began in 1985.

Consumer expectations on the general state of the economy is at an all-time low and their views on their own financial situation and their ability to save have fallen sharply.

News by Reuters, edited by ESM – your source for the latest retail news. Click subscribe to sign up to ESM: European Supermarket Magazine.

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