Consumer Sentiment in Germany Deteriorates at the Start of the Year
According to the latest Consumer Climate Index, released by the market research institute GfK and the Nürnberg Institute for Market Decisions (NIM), the consumer sentiment in Germany has taken a turn for the worse at the start of the year. Both the confidence in the economic outlook and the willingness to make a purchase have decreased in January, while the savings propensity has recorded slight gains.
The consumer climate index has fallen and a decline of one point is forecasted for February 2025, compared to the previous month, with a value of -22.4 points. The negative development of income expectations and the willingness to make a purchase, as well as a rising savings propensity, have all contributed to the deterioration of the consumer climate.
“The consumer climate is experiencing a setback and is starting the new year in a gloomy mood” explained Rolf Bürkl, a consumer expert at NIM. “The slight hopes of a cautious recovery that emerged in the previous month have been immediately dashed. Since mid-last year, a stagnating trend has been visible, while in the first half of 2024, the signs still pointed towards a recovery.”
Bürkl added that a sustainable recovery of the consumer climate is not currently in sight, given the recent increase in the inflation rate.
The assessment of the Germans regarding the general economic situation in Germany over the next 12 months has also deteriorated. The indicator has decreased by 1.9 points and now stands at -1.6 points.
According to the first calculations of the Federal Statistical Office, the German economy shrank by 0.2 percent in the previous year, marking the second consecutive recession. In 2023, the decline was 0.3 percent. And even for this year, the growth prospects are rather subdued. The latest forecasts have been revised downward and currently stand at around half a percent for real gross domestic product.
The expectations of the financial situation of one’s own household over the next 12 months have also become less positive. The income expectations have lost about half of their gains from the previous month, the index losing 2.5 points and now standing at -1.1 points. In December 2024, it had gained 4.9 points.
The development of the income expectations in the previous year can be characterized by two different phases: the first half of the year was marked by a noticeable improvement in income expectations, which was then replaced by a falling trend in the second half, the institutes explained. This trend corresponds to the real income development of private households, which was mainly positive in the first half of 2024.
The institutes see the declining income expectations as a major reason for the slightly weaker willingness to make a purchase. The index has lost 3 points and now stands at -8.4 points, the lowest value since August 2024, when -10.9 points were recorded.
The recent increase in the inflation rate in Germany, which rose by 2.6 percent in December compared to the previous year, is likely to have had a dampening effect not only on income expectations but also on consumer sentiment, the researchers explained. Moreover, the persistent news on factory closures and production relocations in the population have led to increasing concerns about one’s own job, which has also affected consumer sentiment.
The survey period for the current analysis was from January 2 to January 13, 2025.