Consumer Climate: Severe decline at the start of the year

The year 2024 starts off very disappointingly for consumer sentiment in Germany: both economic and income expectations as well as the willingness to buy are showing noticeable declines. Consumer sentiment drops sharply after rising in the previous month. In the forecast for February 2024, the Consumer Climate falls to -29.7 points – a decline of 4.3 points compared to the previous month (revised to -25.4 points). These are the results of the GfK Consumer Climate powered by NIM for January 2024, which has been published jointly by GfK and the Nuremberg Institute for Market Decisions (NIM), founder of GfK, since October 2023.

The reason for the significant decline in consumer sentiment also lies in the noticeable increase in willingness to save at the beginning of the year. A worse value of the Consumer Climate was last measured in March 2023 at -30.6 points. "The improvement in consumer sentiment last month was apparently just a brief flare-up before Christmas. If there were any hopes of a sustained recovery in sentiment, these were destroyed again in January. The Consumer Climate suffered a severe setback at the beginning of the year," explains Rolf Bürkl, consumer expert at NIM. "In addition to the decline in income expectations and the willingness to buy, this is also due to consumers' willingness to save, which is currently still on the rise. It rose 6.7 points to 14 points in January 2024, the highest value since August 2008." 

These results indicate that hopes for a sustained recovery in consumer sentiment have to be postponed further into the future. Crises and wars, as well as persistently high inflation make consumers feel insecure and thus prevent a rise improvement in consumer sentiment.  


Income expectations continue to fall 

After rising noticeably in the previous month, income expectations fell sharply in January: with a decline of 13.1 points, the indicator has fallen dramatically to -20 points. This is the lowest value since March 2023, when -24.3 points were measured. Income expectations are thus continuing their downward trend.

One reason for the income pessimism is probably the fact that inflation has risen again slightly. According to the Federal Statistical Office of Germany, inflation rose to 3.7 percent in December. In November, the figure was 3.2 percent. And the return to the regular VAT rate of 19 percent in the gastronomy industry at the beginning of 2024 and the increase in the CO2 tax for energy will probably boost prices and further weaken income expectations.


Willingness to buy falls in line with income expectations

The significant drop in income expectations also reduced consumers' willingness to buy again in January: the indicator lost 6 points, falling from -8.8 to -14.8 points and is thus almost at the level of November 2023 (-15.0).

Inflation also plays a very important role in the willingness to buy. Concerns about persistently high food and energy prices reduce the planning security that is particularly necessary for larger purchases. And when more money has to be spent on everyday goods, many people lack the financial resources for other purchases, such as furniture or electronic devices. 

The influence of high prices on the weak willingness to buy is also confirmed by a recent in-depth analysis conducted by NIM: consumers were asked why they do not think it is a good time to make major purchases at the moment. In the open survey, around 60 percent responded that high and rising prices are the reasons for their negative judgment. This puts the issue of inflation well ahead of all other reasons mentioned, such as political and economic uncertainty and their own bad financial situation.


Economic expectations are rated more pessimistic

Economic expectations for the next 12 months started the year on a similarly pessimistic note. The economic expectations indicator lost 6.2 points, falling to -6.6 points. A lower value was last measured in December 2022 at -10.3 points.

The German economy closed 2023 with a small decline in economic growth. According to first calculations by the Federal Statistical Office, real gross domestic product (GDP) was 0.3 percent lower than in 2022. High prices in almost all sectors and rising interest rates had a dampening effect on the economy last year. Growth prospects for this year are also rather low. The German Economic Institute (IW), for example, expects a slight recession in its economic forecast for 2024 (GDP: -0.5 percent).