Germany's consumer sentiment has started the year on a negative note, with a decline in economic expectations, income forecasts, and willingness to spend. The Consumer Climate indicator, a key gauge of consumer confidence, dropped to -22.4 points in February, down from -21.4 points in January, signalling a challenging outlook for the country's economy.
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The GfK Consumer Climate, based on consumer interviews conducted by GfK and the Nuremberg Institute for Market Decisions (NIM), reflects a general downturn in optimism. While the willingness to save increased slightly by 2.3 points compared to the end of 2024, the broader economic pessimism is evident. Rolf Bürkl, consumer expert at NIM, commented that the recovery hopes observed in late 2024 have dissipated, with inflationary pressures and a sluggish economy contributing to this negative shift.
The economic outlook for 2025 has also weakened. After Germany's economy contracted by 0.2% in 2024, it marked the second consecutive year of recession. Real GDP growth projections for 2025 have been revised downward, with the economy expected to grow by just 0.5%. This bleak forecast has impacted consumer views on both the economy and personal financial prospects.
Income expectations have fallen by 2.5 points, reversing some of the gains seen in December 2024. The indicator now stands at -1.1 points, reflecting the less optimistic outlook for household incomes. While the first half of 2024 saw some improvement in incomes, the second half has been characterised by stagnation, mirroring the broader economic slowdown.
Declining income expectations are directly influencing consumers' willingness to purchase. The willingness to buy dropped by 3 points to -8.4 points, the lowest level since August 2024. This decline in consumer spending is further exacerbated by rising inflation, with December prices increasing by 2.6%, dampening the outlook for both household budgets and retail sales.
Factory closures and the shifting landscape of production relocations have added to the sense of insecurity among the workforce, further impacting consumer confidence. Despite slight gains in saving intentions, the overall sentiment remains weak as economic challenges persist.
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