Households have become more cautious in their spending intentions due to the COVID-19 pandemic. Many fear that they will suffer future losses in income as well. These are the initial findings that the Bundesbank has published in two research papers.

The results are based on an online survey conducted by the Bundesbank. The survey, which was first conducted as part of a pilot in the spring of 2019, asks individuals about their expectations regarding inflation, their income and their planned expenditure, amongst other things. When the pandemic broke out, the surveys were expanded to take into account its possible effects on the consumption habits and expectations of the households surveyed. Since then, they have been conducted on a monthly basis. In May 2020, the Bundesbank surveyed 2,033 households in Germany.

Restraint in planned spending

In a Research Brief based on the pilot survey, René Bernard, Panagiota Tzamourani and Michael Weber explain how the coronavirus pandemic affects households’ consumption plans. According to this brief, most households intend to spend the same over the next twelve months as they did in the previous twelve months. At the same time, however, the percentage of those intending to spend more has decreased. The percentage of those intending to spend less also decreased in several spending categories, according to the survey. The authors write that this development is driven by coronavirus-induced income losses and higher inflation expectations. They find that more than 40% of households incurred income or other financial losses due to the pandemic and the policy measures addressing it.

By contrast, households’ marginal propensity to spend has so far not changed during the coronavirus crisis. This refers to the question of what households would do with an additional, unexpected income payment. According to the survey, almost half of a windfall payment equal to a household’s monthly income would be spent on durable or non-durable goods. A survey conducted by the Bundesbank in 2017 reached a similar conclusion.

Households expect future income to be lower

Many respondents expect their household income to fall as a result of the pandemic and its repercussions. For example, individuals in employment expect their net income to fall by an average of €115 over the next twelve months. There are major differences in this case, however: whilst around 20% of respondents expect a decline of less than €250, 12% expect a decrease of between €250 and €500. Just over 9% expect an even larger decline in their income.

Additional information does not result in more positive expectations

In a second Research Brief, authors Olga Goldfayn-Frank, Georgi Kocharkov and Michael Weber outline how these and other expectations change when households are informed about policy actions taken to cushion the economic fallout of the pandemic. These include, for example, the announcement of the ECB’s Pandemic Emergency Purchase Programme (PEPP), or the Federal Government’s announcement of an aid package. Although these measures are expansionary and households should therefore be more optimistic about their income situation, experts find no link between additional information and expectations about future income. In terms of expectations regarding future economic developments, there is even an opposite correlation: individuals who received information about assistance measures provided lower estimates of future GDP growth than those from whom this information was withheld.

New publication series

The Bundesbank has published details of the 2019 pilot survey’s data collection methodology and design in a technical paper. In future, technical or methodological papers will be published in this new publication series.