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Jan. 27, 2021, 2:02 a.m. EST

German consumer confidence set to drop sharply

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By Maria Martinez

--German consumer sentiment is set to fall to minus 15.6 points in February

--Economic expectations, income expectations and propensity to buy fell in January

--Propensity to buy had a decline similar to the one seen in April, during the first lockdown

German consumer sentiment is set to plunge in February due to the tightening of coronavirus restrictions, market-research group GfK said Wednesday.

"Consumer sentiment is facing difficult challenges in the first quarter of this year," Rolf Burkl, consumer expert at GfK, said.

GfK's forward-looking consumer sentiment index is set to drop to minus 15.6 points in February from a revised minus 7.5 points in January. The decline is much larger than that predicted by economists polled by The Wall Street Journal, who expected consumer sentiment to fall to minus 7.8 points.

"The recent decision to extend the strict lockdown measures has dashed hopes of a speedy recovery for consumer sentiment," GfK said.

GfK uses data from three subindexes from the current month to derive a sentiment figure for the coming month, measuring economic expectations, income expectations and propensity to buy.

The three subindexes had losses in January. Propensity to buy is in free fall, while both economic and income expectations have registered moderate declines.

Propensity to buy is at zero points in January--a decrease of 36.6 points on the previous month, which is comparable to the drop of 36 points recorded in April.

"The closure of the restaurant trade and large portions of the retail sector in mid-December 2020 has had a similarly damaging effect on consumer spending as that of the first lockdown last spring," Mr. Burkl said.

The strict lockdown has also impacted income expectations, with the indicator dropping to minus 2.9 points in January from 3.6 points in December.

The extension of the lockdown to mid-February has also made it more likely that the industries affected will be hit by a wave of bankruptcies, fueling fears of job losses among employees, which in turn is affecting income expectations, GfK said.

In contrast to propensity to buy and income expectations, economic expectations have only had slight decreases this month, with the indicator dropping to 1.3 points in January from 4.4 points the prior month.

For consumer sentiment to recover sustainably, infection rates will need to decrease more than they have to date so that the measures can be relaxed significantly, Mr. Burkl said.

"This means that we will need to wait a while before we see the recovery that many had been hoping for this year," he said.

Write to Maria Martinez at maria.martinez@wsj.com

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