German consumer morale falls as coronavirus surge hits economy

German consumer morale falls as coronavirus surge hits economy

BERLIN, Nov 25 Reuters - A surge in coronaviruses in Germany is weighing on consumer morale in Europe's largest economy, weighing on business prospects in the Christmas shopping season and threatening to kick off its last remaining pillar of growth.

The consumer sentiment index, which was based on a survey of around 2,000 Germans, fell to 1.6 points heading into December, from a revised 1.0 points a month earlier.

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

The survey followed by detailed gross domestic product data which showed household spending was the sole driver of a weaker than expected economic expansion in the third quarter, more than offset a drop in company investments and state consumption over the summer.

The Federal Statistics Office said that the gross domestic product in Europe's largest economy grew by 1.7% quarter-on-quarter in adjusted terms from July to September. That fell short of the 1.8% estimate of 1.8% published last month.

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

The growth rate in the third quarter was 3 percentage points higher in July-September from the previous three months because of a 6.2% jump in consumer spending in July-September.

This is due to the catch-up effects in the service sector. VP Bank Group analyst Thomas Gitzel said that restaurants, bars and the hotel industry were in particular benefited.

In the third quarter, there was weaker investment activity by companies in machinery and buildings because of the persistent supply bottlenecks in manufacturing, which was holding back overall growth, according to Gitzel.

State spending fell on the quarter, further pushing down the headline GDP figure.

A jump in new coronaviruses is now threatening to kick off 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.

The fourth wave in the COVID-19 pandemic, with infection rates rising rapidly and hospitals reaching capacity limits, was causing concerns that more restrictions for shops and restaurants would be put in place, according to GfK economist Rolf Buerkl.

He said that inflation rates of more than 4% hurt the purchasing power of consumers.

The business prospects for the upcoming Christmas shopping season are being hampered because of this, according to Buerkl.

The expectations of consumers for their personal income and the development of the economy deteriorated. This pushed the propensity to buy to a nine-month low.