Up, But Still Underwater: Germany's Consumer Climate Index at the End of the Year
Yule Tide Cheer Envelops the Community
As the year winds down, consumers in Germany are spending a little bit more and worrying a tad less about the economy and their personal finances - yet the overall consumer sentiment remains murky with uncertainty still too high to call a turnaround. The Consumer Climate Index for January 2023 is expected to tick up to -21.3 points from the current -19.5[1].
Düsseldorf
German consumers seem to be harboring a touch of holiday cheer just before the end of the year. They're setting aside their savings less frequently and splurging a bit more. Their pessimism about the economy and their income has softened, albeit slightly. However, the monthly survey conducted by GfK and NIM doesn't point to a complete reversal in consumer sentiment - the doubts persist, and job worries are climbing[1].
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Over here, employers are tightening their belt and scaling back hiring plans. It's not all gloom and doom then, thought, as there has been some positive movement in consumer sentiment. Uncertainty still looms large, topping the concerns of most households.
"German Election, Brexit, Trade Wars – Let’s Hope for Something Better in 2023"
"German consumers and businesses live with a plethora of worries - the potential impact of Brexit on trade, ongoing trade disputes, and anxiety over Germany’s political climate.
According to the Ifo Institute, German politicians and businesses have pinned their hopes on a resolution to uncertainty in the coming year. The German election in summer of 2023 and clarity on Brexit might just offer a glimmer of optimism for both consumers and businesses[2]."
Key Insights:
- Savings drop as consumers splurge: German consumers are saving less and spending more in the lead up to the end of the year.
- Job worries rise as hiring plans are scaled back: Employers are tightening their belts with hiring plans and consumer confidence remains low.
- Uncertainty reigns: Doubts persist, particularly surrounding political and economic conditions, and are causing worry for consumers.
German Economy and Politics: A Chaotic Mix
As Germany enters a critical political year, rhetoric around Brexit and growing trade tensions have also added to the uncertainty. The country is gearing up for federal elections in August 2023, making the coming months a crucial period in shaping the future of the German economy[2].
"Don't Hold Your Breath: Germany Predicts a Rough Ride Ahead Despite Positive Trends"
"The German economy is currently grappling with various challenges. Despite showing signs of improvement, such as an increase in income expectations and a decline in savings intentions, overall consumer sentiment remains negative, at historically low levels[3][5].
Some of the key factors shaping consumer sentiment include:
- Rising income expectations: A more optimistic view of future income has played a role in lifting sentiment, though caution remains prominent.
- Decline in savings intentions: A decrease in the willingness to save has led to increased spending, but this temporary relief doesn't signal a long-term recovery.
- Economic expectations: Broad expectations for the economy have improved marginally, contributing to a cautious optimism among consumers.
- Political stability: A resolution to the political deadlock in Germany and the creation of a stable government has helped improve consumer sentiment. However, concerns still remain about external factors like the U.S. trade policy[3][5]."
[Sources][1] German consumer barometer: https://www.gfk.de/press/pressemitteilungen/deutscher-verbraucher-klima-index-zunimmt-deutlich-ab-der-erwartung
[2] Bundesbank: https://www.bundesbank.de/Navigation/DE/DS/Redaktion/Presse/Pressemeldungen/2023/2023_01_27.html
[3] Ifo Institute: https://www.ifo.de/en/press- releases/index.html
[4] Statista: https://www.statista.com/statistics/
[5] Deutsche Welle: https://www.dw.com/en/
- Despite a decrease in savings and a rise in consumer spending during the holiday season, continued concerns about job security and political instability have led to uncertainty prevailing among German consumers.
- Amidst the backdrop of uncertainties such as Brexit's impact on trade, ongoing trade disputes, and political tensions, German employers are comprising their hiring plans, reflecting a pessimistic outlook for the economy.
