German Consumer Confidence Improves On Easing Energy Price Burden

Germany’s consumer confidence is set to improve in January for the third straight month, as their economic, income and purchasing power expectations improved amid government measures to curb rising energy costs, survey results from the market research group GfK showed on Wednesday.

The forward-looking consumer sentiment index rose to -37.8 in January from -40.1 in December. The expected score was -38.0.

Thus, the consumer climate continues to improve cautiously, as more moderate energy prices than originally expected and the federal government’s relief packages to curb energy costs are causing pessimism to recede.

“With the third increase in a row, the consumer climate is slowly working its way out of the low,” said Rolf Burkl, a GfK consumer expert, said. “The light at the end of the tunnel is getting a little brighter.”

In December, income expectations gained for the third time in a row, as the respective index rose by 10.9 points to -43.4. This improvement relied on a moderation in energy prices.

Despite a permanently falling trend between autumn 2021 and autumn 2022, the propensity to buy seems to be stabilizing in December. The relevant index gained by 2.3 points and came in at -16.3 in January.

Despite this, reluctance to buy among households remained high on the backdrop of uncertainty caused by the pandemic, the Ukraine war, and inflation.

The index measuring income expectations rose for the second straight month by 7.6 points to -10.3 points, indicating that economic prospects are gradually leaving their lows behind.

The consumer climate remains low despite the slight improvement. Therefore, the lack of consumption will remain a burden on economic development in Germany in the coming year.

“The recovery in consumer confidence, as we are currently seeing it, is still on shaky ground,” Rolf Burkl said.

The geopolitical situation worsens again and leads to a significant increase in energy prices, the light at the end of the tunnel would very quickly dim again or even go out completely, Burkl added.

Consumers in Germany continue to believe the country will enter a recession soon. However, it is likely to be less deep than was feared a few months ago.

Economic experts are currently assuming that gross domestic product will fall by around half a percent in 2023, and consumption by households may be badly affected by lower purchasing power, GfK said.

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