Germany Has the Shopping Blues

Germany’s economic slump has hit private businesses hard and consumer confidence took an unexpected turn for the worst, according to figures released this week.

Almost 150,000 private businesses are facing bankruptcy this year due to the country’s high unemployment and low confidence in an economic turnaround.

The Monday results, from the country’s Association for German Private Businesses (HDE), came a day before the Munich-based Ifo Institute revealed that consumer confidence had dipped from May to June. The drop in confidence was directly connected to Monday’s bad news. A slump in the construction industry and private businesses were the reasons the confidence index slipped from 91.6 in June to 91.3 in May, according to the Ifo figures.

Forget that new suit

"The consumer is bombarded with bad news," said Hermann Franzen, of the HDE. "That's no atmosphere in which to buy himself a new suit."

Big business doesn’t see any reason to be hopeful either. Companies polled by Ifo said that they expected the economy to continue its slump. "The slip is almost completely due to the not so fortunate expectations for the next six months," Hans Werner-Sin, Ifo’s president, told reporters.

Werner-Sin said his institute, among the leading business forecasters in Germany, remained optimistic that a turnaround was in sight. His counterpart at the private business association wasn’t too sure.

Political action needed

Franzen said major changes were still needed in Germany’s labor market and appealed to Chancellor Gerhard Schröder’s government to initiate the structural reforms necessary.

"Hope dies at the very end," he said in a statement. "Business is living almost completely running on hope at the moment. That’s why we hope things will change after the next election."

Germany has about 4 million unemployed at the moment, about 8.5 percent of the population. That means less money to spend and a worsening prognosis for private business, said Franzen. Exactly one third of the private businesses polled by the association are due to report a drop in annual income of 10 percent.

"We have never had such an unfortunate result," Franzen said in a statement.

Euro not to blame

The results, though, had little to do with the European Union’s new currency, said Franzen. Consumers have been grumbling since the introduction of the euro that private business has used the new currency to raise prices.

"The euro is only a building block for the downward trend," said Holger Wenzel of the HDE.

Bad news for private business will mean good news for consumers, though. The HDE said it expects more sales in the coming months. It might be time to buy that new suit, after all.