German consumer climate reaches 18-month high as income optimism rises

German consumer confidence continued its gradual recovery in October, reaching its highest level since April 2022, according to the latest GfK Consumer Climate report published by GfK and the Nuremberg Institute for Market Decisions (NIM). 

The Consumer Climate index for November is projected to rise by 2.7 points, bringing it to -18.3 points from a revised -21.0 points in October. 

The increase was driven largely by improved income expectations and a rising willingness to buy, marks the second consecutive month of growth in consumer sentiment.

The forward-looking indicator sampling over 2,000 German households captured shifts in consumer sentiment across income expectations, economic outlook, and readiness to make purchases.

Rolf Bürkl, a consumer expert at NIM, noted: “Following the slight improvement in the previous month, the Consumer Climate continues to improve. It has climbed to its highest level since April 2022, when -15.7 points were measured after the start of the war in Ukraine.” 

Nonetheless, Bürkl cautioned that ongoing economic uncertainties and inflationary pressures still weigh heavily on consumer optimism. 

“The uncertainty caused by crises, wars, and rising prices is still very much present and is preventing factors that encourage consumption, such as real income growth, from taking full effect,” he added.

Rising income expectations spur willingness to buy

Income expectations emerged as a bright spot, buoying consumer sentiment with a 3.6-point increase, pushing the indicator to 13.7 points. This optimism represents a striking improvement of 29 points over the same period last year. 

Falling inflation, coupled with notable wage growth across multiple sectors, has contributed to a sense of real income growth among consumers. Pensioners, too, are seeing real increases in income, which has been rare in recent years amid high inflation.

The boost in income prospects has positively impacted consumers’ willingness to make purchases, which rose by 2.2 points to -4.7 points, its highest level since March 2022. 

This suggests a cautious yet growing inclination to spend. However, despite this improvement, the willingness to buy remains well below pre-crisis levels, and any new economic shocks could quickly temper consumer enthusiasm.

Economic expectations slide amid recession fears

While consumer optimism shows signs of recovery, concerns over Germany’s economic trajectory remain. 

Economic expectations among consumers fell for the third consecutive month, with a modest decline of 0.5 points, taking the economic expectations indicator to a near-flat 0.2 points – its lowest since March 2024. 

The German government recently downgraded its 2024 growth forecast, now projecting a 0.2% contraction in GDP, underscoring these subdued economic expectations.

Uncertainty around corporate health and employment also looms over consumers, as rising insolvencies and possible job cuts add to economic anxieties. 

ADVERTISEMENT

“Reports of a rising number of company insolvencies and plans to cut jobs or relocate production abroad are also preventing a more significant recovery in consumer sentiment,” Bürkl explained.

Market reactions

The DAX index advanced 0.4% to reach 19,620 points on Tuesday, marking its second consecutive session of gains and positioning it within 0.5% of its all-time high set earlier this month.

Among top gainers were Daimler Truck Holding AG, Continental AG, and Adidas AG, which climbed 1.7%, 1.3%, and 1.2%, respectively. Adidas posted a 71% jump in Q3 net profit and reported strong sales growth in China.

German stocks moved in line with the overall positive sentiment across Europe, as the EuroStoxx 50 index gained 0.5% with investors closely watching quarterly corporate earnings.

ADVERTISEMENT

France’s CAC 40 rose 0.7%, while Italy’s FTSE Mib and Spain’s IBEX 35 edged up 0.2%.