The reduction in consumer spending was one of the reasons that led to Germany V recession in the first quarter, when other countries Eurozone they managed to avoid it. But even now, as inflation begins to ease, all indications are that traditionally thrifty Germans have no intention of pulling their country out of recession through buying and spending. In short, Europe’s largest economy must find other growth drivers. “Germans are inherently cautious,” notes Stefan Fetz, chief executive of KPMG, adding: “If they are unsure about the future, they don’t want to spend.” Germany’s GDP contracted 0.3% in the first quarter, the second straight quarter of contraction, in part as household spending fell 1.2% while France and Italy rose.

OUR German economy, which the Sentix analysis called “the eurozone’s most problematic child”, is at a tipping point. Household consumption, which, as elsewhere, is about 50% of Germany’s GDP, will be decisive. Consumer confidence in Germany remains below the lows seen during the first wave of the pandemic in the spring of 2020, and the barometer of the German Retail Association paints the same picture. As he emphasizes, “in the coming months, a significant improvement in private consumption is not expected.” There are many reasons. As Berenberg’s chief economist Holger Schmieding notes, German consumers have been particularly hard hit by high energy prices, but the government’s support measures have not been as generous as in other countries. Karsten Brzeski, chief executive of ING, also notes that Berlin is slowly capping energy prices compared to France and Italy.

Although inflationary pressures are easing, German consumers remain cautious. Accustomed to low prices for years thanks to discount stores, they do not want to spend money because they consider prices too high. And now another aggravating factor is being added: an ECB interest rate hike of 375 basis points from July 2022, making it more expensive to borrow and more profitable to save. According to Gerg Cramer, an economist at Commerzbank, there is an average of five quarters between the first interest rate hike and the first blow to the economy. This suggests further contraction of the economy in the second half of the year.