The recovery in consumer sentiment in Germany continued in April. Income expectations grew noticeably, economic expectations and the willingness to buy are increasing moderately. The consumer climate thus improved for the third time in a row. In the forecast for May, the indicator increases to -24.2, which is an improvement of 3.1 points compared to the previous month (revised to -27.3 points), reaching a two-year high – although still at an extremely low level. These are the current findings of the GfK Consumer Climate powered by NIM, which has been published jointly by GfK and the Nuremberg Institute for Market Decisions (NIM), the founder of GfK, since October 2023.

The willingness to save is preventing a sharper increase in consumer confidence this month, as consumers tend to save a little more again in April. This is reflected in the slight increase in the willingness to save, which gained 2.5 points and remained at an extremely high level of 14.9 points. Twelve months ago, the savings indicator was still at 1.8 points. This represents an increase of more than 13 points.

“The stronger increase in consumer sentiment compared to the previous two months is mainly due to the noticeable increase in income expectations,” explains Rolf Bürkl, consumer expert at NIM. “Our analyses indicate that income expectations are primarily based on real income development. And the signals here are definitely positive. Rising wages and salaries combined with a recent decline in the inflation rate form the foundation for increasing purchasing power among private households.”

In times of multiple crises and a lack of confidence in future economic development, there is still a great deal of uncertainty among consumers, because they do not see a clear and comprehensible perspective for the country’s future development. The current poor sentiment veils the facts. As a result, there is still no strong momentum for domestic demand.

Income expectations increase considerably

or the third time in a row, consumers’ income expectations rise in April. Moreover, the increase is substantial at 12.2 points. The indicator climbs to 10.7 points. The last time it reached a higher level was in January 2022, when it stood at 16.9 points.

In total, the income indicator has already improved by more than 30 points since the beginning of the year. Private households are currently experiencing significant real income growth, as both collective wages and salaries and government pensions have increased considerably and will continue to do so in the coming months. On the other hand, the inflation rate is declining, reaching 2.2 percent in March, which brings it considerably closer to the European Central Bank’s (ECB) target of around two percent. This is strengthening the purchasing power of households.

The willingness to buy improves moderately

This month, the willingness to buy is benefiting – albeit only moderately – from the sharp increase in consumers’ income expectations. After stagnating in the previous month, the willingness to buy gains 2.7 points in April. It currently stands at -12.6 points. However, it continues to be at an extremely low level. In fact, it is even well below the values recorded during the two pandemic-related lockdowns in 2020 and 2021. In addition to rising prices, it is mainly the pronounced uncertainty among consumers that is causing private households to put their financial resources aside and invest less in consumption.

Economic outlook slightly less pessimistic

Economic expectations are also rising in the wake of the general improvement in sentiment: The indicator gains 3.8 points and thus rises to 0.7 points. This is the best value since July 2023, when 3.7 points were recorded. However, compared to the same period last year, a significant decrease of 13.6 is currently evident.

Despite the third slight increase in a row in economic expectations, a sustained economic recovery is still lacking from a consumer’s point of view. In its recently published forecast, the International Monetary Fund (IMF) also assumes that Germany’s gross domestic product (GDP) will only grow by a modest 0.2 percent this year. It thus essentially agrees with earlier predictions by research institutes and the government. After a weaker first six months, the economy is expected to pick up again in the second half of 2024.