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Russia Sanctions Hit German Consumers, “Economic Expectations Completely Collapse”

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This is a really interesting piece from testosteronepit via zerohedge.

It seems that consumer confidence in Germany has crashed because of recent geopolitical events. The only crumb of comfort is the underlying soundness of the German economy.

Will this crumbling of confidence happen in Britain, or does what has happened in Germany reflect the fact that Germans are generally better educated and informed than Brits, who are too busy with their ice bucket challenges to notice anything?

It starts out un-alarmingly. The optimism of German consumers weakens somewhat, according to the forward-looking Gfk survey, conducted on a monthly basis for the European Commission. So the overall index fell to 8.6 for September, from 8.9 in August. It was the first decline since January 2013.

The index bottomed in late 2008 below 2, after a breathtaking crash during the financial crisis. In late 2007, it had hovered above 9. Early 2014 was the first time since the prior bubble that the index broke above 8. And August’s level of 8.9 represented an “extremely optimistic economic outlook,” as Gfk calls it. German consumers have been feeling good, and according to the headline index, they’re still feeling good up there somewhere in the rarefied air above 8.

But beneath the surface, there is serious trouble. Gfk reports that the sub-index of economic expectations, “in light of the intensified state of international affairs, completely collapses.”

It plunged 35.5 points to 10.4. The worst monthly plunge since the beginning of the survey in 1980. In a single month, it nearly wiped out all the gains of the boom of the last 12 months. Gfk cites the escalation of the situation in Iraq, Israel, the Eastern Ukraine, and particularly “the faster rotating sanctions spiral with Russia.”

Since there appears to be no sustainable solution to any of the trouble spots, consumers are showing increased uncertainty about the possible consequences for the German economy, Gfk reports. “Particularly the sanctions against Russia, which have already hit exports noticeably, could become a real danger for the German economy.”

The two sub-indices for income expectations and propensity to spend have been spared so far this type of brutal collapse, though they both fell from their lofty perches. Income expectations hit an all-time record in August. But for September, the index dropped 4.6 points to 50.1. The propensity to spend dropped 1.7 points to 49.3. At these levels, both are still “relatively robust.”

Gfk credits “the continued stable domestic conditions, stable employment levels, good income development, and low inflation” for limiting so far the impact of collapsing economic expectations on income expectations and the propensity to spend.

Full article at: http://www.zerohedge.com/news/2014-08-27/russia-sanctions-hit-german-consumers-%E2%80%9Ceconomic-expectations-completely-collapse%E2%80%9D

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I think anyone with an ounce of sense would be starting to worry.But that clearly doesn't include stock markets or politicians because they're so forward looking.

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