Market Analysis

German consumer mood improved in May due to income optimism, according to GfK

Amos Simanungkalit · 25 Apr 20241.1K Views

According to a recent survey conducted by GfK and the Nuremberg Institute for Market Decisions (NIM), German consumer sentiment is poised for a boost in May, driven by households' optimistic outlook on income. Despite a slow recovery marked by economic uncertainty, the consumer sentiment index rose to -24.2 in May from April's -27.3, surpassing analysts' expectations and hitting a two-year high. However, sentiment remains notably low.

One of the key drivers behind this positive shift is the significant increase in income expectations, which soared by 12.2 points to reach 10.7. This surge is attributed to declining inflation rates and a rise in wages, signaling encouraging real income growth. Rolf Buerkl, a consumer analyst at NIM, emphasized the positive signals stemming from real income development.

On the other hand, the willingness to make purchases saw only a modest increase, climbing 2.7 points to -12.6. This cautious approach reflects households' tendency to save money amid lingering uncertainties about the economic trajectory of Germany, the largest economy in Europe.

The consumer climate indicators for May 2024 show a slight improvement compared to the previous month and the same period last year:

Consumer climate: -24.2 (April 2024: -27.3, May 2023: -25.8)

Willingness to buy: -12.6 (April 2024: -15.3, April 2023: -13.1)

Income expectations: 10.7 (April 2024: -1.5, April 2023: -10.7)

Business cycle expectations: 0.7 (April 2024: -3.1, April 2023: 14.3)

The survey, conducted from April 4-15, 2024, predicts the trajectory of real private consumption for the following month. A positive indicator reading suggests year-on-year growth in private consumption, while a negative value indicates a decline compared to the same period a year earlier. GfK estimates that a one-point change in the indicator corresponds to a 0.1% change in private consumption.

The "willingness to buy" indicator gauges respondents' sentiments regarding major purchases at the current time. The income expectations sub-index reflects expectations about household financial developments over the next 12 months. Additionally, the business cycle expectations index reflects respondents' outlook on the general economic situation over the next year.