Germany’s consumer morale at low level

The sentiment among German consumers fell to its lowest in three years heading into November, a survey showed on Friday. Job losses in the automobile industry and financial services made shoppers more pessimistic about the outlook for Europe’s biggest economy.

The consumer sentiment indicator, published by the Nuremberg-based GfK institute and based on a survey of around 2,000 Germans, fell to 9.6 going into November, the lowest reading since November 2016. The reading was lower than the 9.8 forecast in a Reuters poll.

The October reading was revised down to 9.8 from a previously reported 9.9. Trade conflicts and fears that Britain could crash out of the European Union without an agreement have contributed to a recession among Germany’s export-dependent manufacturers, and the slowdown is starting to spread to services.

Europe’s largest economy, which has been mainly relying on consumption and state spending for growth, is expected to dip into recession in the third quarter. Chancellor Angela Merkel’s coalition of conservatives and Social Democrats (SPD) has resisted calls for a stimulus package despite signs that the job market is weakening and fears that the auto industry will shed thousands of jobs. “These events have dampened the mood of consumers again and optimism is dwindling,” GfK researcher Rolf Buerkl said in a statement.

“Nevertheless, private consumption will remain an important pillar for the German economy this year - assuming that the current crises do not escalate further and both policy and the economy counter the rising fear of job losses.” GfK said a sub-index measuring economic expectations fell to its lowest since December 2012, as consumers fear that a global slowdown could hit exports and spell more hardship for manufacturers.

German carmakers, which are struggling to adapt to tougher emissions standards and spending billions on a shift to electric cars, could be hit most by a worsening of the global economy, GfK added. “Several automobile manufacturers as well as their suppliers have already announced redundancies,” it said.

 “This loss of jobs at car manufacturers will be further intensified in future by the forthcoming transition to electro-mobility.” Consumers, however, maintained a relatively high inclination to buy, GfK said, suggesting that the economic downturn was not discouraging Germans from taking their wallets out. The European Central Bank (ECB) kept the door open for even more stimulus on Thursday, with inflation in the eurozone still less than half the central bank’s target and growth barely holding in positive territory. The bank’s easy-money policy and record-low interest rates will continue to encourage usually frugal Germans to spend instead of stacking their cash in bank accounts that yield no interest, which should keep supporting German growth.

Meanwhile, RWE denied on Thursday a report saying the German power firm would face nearly 1 billion euros ($1.1 billion) of losses related to its coal-fired power plants this year.

The think tank Carbon Tracker Initiative reported that four in five coal plants in the European Union were unprofitable and utilities faced losses of nearly 6.6 billion euros this year.

It said RWE faced the biggest losses, calculated at 975 million euros, equal to 6% of its market capitalisation.

“The numbers and assumptions do not stand up to the facts. They are wrong and cannot form the basis for a serious assessment,” an RWE spokesman said.

RWE does not break out profit figures just for its coal-fired power plants, which fall under two divisions: European Power and Lignite & Nuclear. The units are expected to post a combined core profit of 550-750 million euros for 2019.

“If plants were not covering their cash costs we would not run them,” the spokesman said.

Several EU countries plan to phase out coal to comply with international emissions-reduction targets. Some, such as Poland, still rely on coal for most of their power generation.

Carbon Tracker Initiative said Greece’s main utility, Public Power Corporation (PPC), could lose 596 million euros from its coal plants this year.

A PPC spokesperson said the number was much higher than the company’s estimate, but gave no figure. Greek Energy Minister Kostis Hatzidakis was quoted as saying the loss was seen at 300 million euros this year, up from 200 million last year.

Many coal plant operators say coal will be needed for decades to provide stable energy supplies because renewable energy is intermittent. But falling costs of renewable energy and cheaper natural gas are creating competitive alternatives. Many coal plants would also need to install expensive technology to meet stricter EU air quality standards from 2021, while rising carbon permit prices would also increase costs, the Carbon Tracker Initiative report said.

The think tank said it had analysed the operating economics of every coal plant in the EU.

It found hard coal generation, which has the highest carbon content, had fallen 39% this year.

The report said 84% of lignite generation, which also has a high carbon content, and 76% of hard coal generation was unprofitable, resulting in losses of 3.54 billion and 3.03 billion euros, respectively.

Across the EU, 79% of coal plants were running at a loss, it said.

Reuters