Consumer Sentiment Sinks with Political Turmoil in Germany and France

Morning Consult’s Global Consumer Confidence map had more oranges and reds than greens this month. One region stood out the most: Europe. Consumer sentiment dropped in 14 out of sixteen countries surveyed in the region. Looking at monthly averages, Germany had the largest drop in average monthly sentiment from October to November. France will likely take over the lead for the “biggest loser” as the French Prime Minister lost the no confidence vote on December 4.

German sentiment shifting down

Since the beginning of the year, consumer sentiment has generally been either moving up or sideways. However, last month, around the time the German coalition collapsed, consumer sentiment also took a hit. 

Morning Consult’s consumer sentiment is an average of   five questions on future and current economic conditions,  the same as in the University of Michigan consumer sentiment survey. The survey questions are fielded in 43 countries every day. The daily and ongoing nature of the survey allows us to narrow down possible causes of shifts in sentiment. At times, the reason may be a recent data figure or a political event. At other times, it can be a combination of cumulative effects of events such as persistent periods of unemployment or inflation. 

The timing of the latest drop in German sentiment – after a prolonged period of relative stability of the index –  suggests that it may be tied to the uncertainty caused by the end of Germany's “traffic light” coalition when Chancellor Olaf Scholz announced the dismissal of Finance Minister Christian Lindner on November 6, 2024. In the daily data (shown here as a 5-day moving average), sentiment began to drop well in advance of Nov. 6, around regional elections and moved further down as the coalition government discussed and disagreed on the budget.

The effect of this period of political uncertainty was apparent in all sub-indexes but the magnitude was largest for expectations for business conditions. While indexes have mostly stabilized (in fact, current buying conditions and outlook for personal financial conditions have picked up slightly), we expect to see potentially more volatility as Germany holds elections on February 23, 2025 after an expected loss of no confidence on December 16.

France becomes part of the wave of uncertainty in Europe

Shortly after Europe’s largest economy entered a period of political uncertainty, its second largest economy followed suit. On December 4, French Prime Minister Michel Barnier lost a vote of no confidence, ending his three-month old government. Unlike the step-down (over a few weeks) that we observe in Germany, France’s consumer sentiment index has been generally moving down since the end of August. In their November political risk ratings, Morning Consult Political Intelligence colleagues downgraded France, from B- to CCC+ noting the decline in both rating components.  

Therefore, for those who are watching French politics, this was not a surprise. For French consumers, a higher volatility began around the snap elections in July with a V-shape recovery in some of the subindexes but then a steady downward trend in almost all metrics as the government deliberated on the 2025 budget. As also indicated for Germany, the current buying conditions index stayed relatively stable as this question is more reflective of consumers’ views of current prices for larger purchases. 

Where to next?

When answering the consumer sentiment questions, one would consider both existing macro economic conditions (such as the rate of inflation, unemployment, GDP growth) that affects views on personal finances and business conditions as well as the political environment, which can affect expectations for the future of the economy. In the near term, with both France and Germany facing uncertainty surrounding their governments, we would expect to see political uncertainty playing a larger role shaping consumer sentiment. 

While consumer sentiment does not have a direct relationship with consumer spending, a steady downward movement in this trend – especially around future expectations – could flash warning signs to both businesses and governments.