“This seems to have brought the consumer climate crash to an end”

Shortly before the start of the hot phase of the Christmas business, the buying mood of Germans brightened again, but remains close to its record low. The barometer for consumer sentiment in December rose by 1.7 to minus 40.2 points, as the GfK market researchers announced on Friday in their monthly survey of 2,000 consumers. Even after the second increase in a row, it remains close to the historic low of 42.8 points reached in October.

"This seems to have brought the consumer climate crash to an end, even if the level of the indicator remains very low," said GfK expert Rolf Bürkl. Economists polled by Reuters had expected a slightly stronger increase.

Consumers assess the economy more positively than recently, as do the prospects for their incomes. "Consumers' long-standing fears of exploding energy prices have currently eased somewhat, which is having a slightly positive effect on the consumer climate," said Bürkl. Apparently, consumers assumed that the government measures adopted to cap energy prices could dampen inflation. Refueling has also recently become cheaper.

In addition, many Germans are counting on the fact that their loss of purchasing power as a result of sharply rising prices will be limited by noticeable wage increases. The wage increases recently agreed in the metal and electrical industry, for example, provide for a wage increase of 5.2 percent by June 2023 plus a further 3.3 percent from May 2024. There is also a one-time special payment of 3000 euros. In addition, the labor market remains stable, which ensures income security.

However, the willingness to make larger purchases – such as furniture or cars – decreased somewhat. "This continuing reluctance to consume is certainly due to the fact that many households will be faced with sharply increased energy bills in the coming months, for which they already have to put money aside," the GfK market researchers explain this development. "These funds are missing for other acquisitions and purchases."

In view of their customers' loss of purchasing power due to high inflation, the majority of retailers are generally pessimistic about the Christmas business that is just beginning. According to the German Retail Association (HDE), 70 percent expect the situation to be worse than last year. Despite the difficult environment, the industry association expects sales to increase by 5.4 percent to EUR 120.3 billion for the last two months of the year. Adjusted for price, however, this is a minus of four percent compared to the same period last year.

"Sales only grow through rising prices due to inflation," explained HDE Managing Director Stefan Genth recently about this difference. The high inflation – which at 10.4 percent is currently the highest it has been in over 70 years – is putting a massive strain on purchasing power.

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