German consumer morale worsened heading into September, casting some doubt on whether household spending in Europe's largest economy is powerful enough to drive a strong recovery from the Covid-19 shock.
The GfK institute said its consumer sentiment index fell to -1.8 heading into September from an upwardly revised -0.2 in the previous month.
The survey is based on a survey of around 2,000 Germans. The drop followed three consecutive increases from June to August.
The reading missed a Reuters forecast for a rise to 1.2.
GfK consumer expert Rolf Buerkl pointed to a recent rise in new coronavirus infections and fear of another round of lockdown measures to slow down the spread of the disease, both of which were causing uncertainty and depressing the mood.
"The VAT cut that came into force on July 1 is supporting the propensity to consume, but it's currently not yet giving any stronger impulses," Buerkl said.
Germany's stimulus package includes a cut to VAT for regular goods to 16% from 19% and for food and some other goods to 5% from 7% from July 1 until December 31.
The reduction is estimated to cost the federal government up to €20 billion.
The government hopes that its rescue and stimulus measures will help companies and consumers recover more quickly from the coronavirus shock which plunged the economy into its deepest recession on record in the second quarter.
The drop in consumer sentiment was mainly driven by falling income expectations while expectations for the development of the broader economy improved a fourth month in a row.
"Consumers are still expecting that the German economy can work its way out of the worst recession since the end of the war," Buerkl said.
But he cautioned that consumers' optimism would fade if the rise in new infections could not be stopped, forcing authorities to implement drastic measures or even a second lockdown to contain the spread of the virus.
