Consumer confidence in Germany modestly ascends, yet consumers maintain apprehension in shopping activities

Rising German Consumer Sentiment Marked by Persistent Uncertainty

German consumer confidence saw a third successive monthly increase in May, reaching -19.9, according to the latest GfK Consumer Climate report. Despite this improvement, the index remains at a deeply negative level, reflecting lingering economic uncertainties that continue to affect households.

The optimism is driven by stronger income and economic expectations. However, a rise in savings and a decrease in purchase intent highlight ongoing apprehension and a fragile recovery.

Germany's consumer confidence gauge has ascended for three consecutive months, although it still remains at a historically low level. The latest figures indicate a rise in personal income and economic optimism. However, this positive trend fails to translate into higher household spending, as increased savings and reduced spending intent perpetuate uncertainty.

Rolf Bürkl, a consumer expert at the Nuremberg Institute for Market Decisions (NIM), pointed out that the unpredictable U.S. trade policies, market volatility, and fears of a third consecutive year of stagnation contribute to the subdued consumer climate. Consequently, people seem to believe that saving is advisable under the current economic circumstances.

A rise of 1.6 points in the savings indicator in May illustrates renewed caution, partially offsetting April's sharp decline. This reserved attitude undermines the positive impact of stronger income expectations and improved economic optimism.

Consumers' income expectations advanced for the third month in a row, attaining a level of 10.4, the highest since October 2024. The improved sentiment is bolstered by robust wage bargains, accompanied by a moderate decrease in inflation. The recent pay deal in the public sector, including a 3% increase this year and an additional 2.8% in 2026, positively impacts purchasing power. Additionally, inflation slowed to 2.1% in April, down from the previous months' 2.2%.

While income prospects appear more optimistic, German households exhibit reluctance to increase spending. The willingness to buy index dropped by 1.5 points in May to -6.4, partially counteracting earlier gains. Compared to May 2024, the indicator is higher by nearly 6 points.

Persevering concerns over job security and geopolitical volatility continue to put a damper on consumer sentiment. Rising unemployment and job loss fears prevent households from making discretionary purchases, despite improving real incomes.

Economic expectations rose for the fourth consecutive month, ascending 5.9 points to 13.1, representing a two-year high. This sustained rise suggests that consumers harbor cautious optimism about a broader economic recovery, despite the slow growth forecast.

The German Council of Economic Experts estimated no GDP growth for 2025 yet anticipates a 1% expansion in 2026, assuming stabilization in domestic and global conditions.

Investors are largely unmoved by the positive economic expectations, as futures on the DAX indicate a flat opening for the German stock market on Tuesday, following a 1.7% gain on Monday. The reprieve from steep tariffs on EU goods, announced by U.S. President Donald Trump, has eased trade tensions, helping to buoy the EU market, particularly Germany, which depends heavily on the U.S. for key export sectors such as pharmaceuticals, industrial machinery, and automotive components.

The euro traded unchanged at $1.1385 on Tuesday, the same level as the previous day. On Monday, the single currency touched $1.1418, marking the highest level in a month.

The improvement in personal income and economic optimism in Germany, despite persistent uncertainties, is evident in the rising consumer confidence index and the increased savings. This trend, however, seems to indicate a lack of confidence in business and finance, as the decrease in purchase intent suggests a cautious approach to spending.

The optimistic income expectations and improved economic optimism are apparent, yet the reluctance to increase spending signals that consumers remain apprehensive about both business and finance matters, keeping a tight hold on their finances due to lingering economic uncertainties.

Consumer confidence in Germany modestly ascends, yet consumers maintain apprehension in shopping activities