The April survey confirmed a modest improvement in consumer confidence at the start of the current quarter and expects a further gain next month. From a marginally firmer revised minus 29.3 in April, the climate indicator is forecast to climb to minus 25.7 in May, nearly 2 points stronger than the market consensus. Historically, recent readings remain quite low but the trend in the headline index is in the right direction.

April's advance was largely due to income expectations which were up fully 13.6 points at minus 10.7, their highest mark since just before the Russian invasion of Ukraine. Lower energy prices combined with various government support measures were important here. Economic expectations also rose a solid 10.6 points to 14.3 and now stand above their long-run average. Indeed, this sub-index is up more than 30 points from a year ago. However, while the propensity to buy gained 3.9 points to minus 13.1, it was still 2.5 points lower than in April 2022 and also short of its level at the time of the two pandemic-related lockdowns in spring 2020 and around the turn of 2021.

Consequently, the implications of today's results for spending are mixed. Consumer confidence seems to have turned the corner but for now a still cautious household sector may be reluctant to step up consumption to any significant degree. Even so, today's report nudges up the German ECDI to 9 and the ECDI-P to 23. Both measures indicate that overall economic activity is currently running somewhat faster than generally expected.

Consumer climate, which has been modestly improving, is expected to rise to minus 27.5 in May's report versus minus 29.5 in April.

GfK's consumer climate survey asks around 2,000 German consumers every month about their assessment of economic conditions. The questions focus on economic and income expectations and consumers' willingness to buy. Having calculated the differences between the positive and negative responses for each question the results are synthesized into a single number that reflects overall consumer expectations for the coming month.

Any insight into household expenditure is vital to understanding how the economy as a whole is shaping up. The monthly correlation between the GfK consumer gauge and actual spending is not especially high but trends in the index can offer useful information about potential underlying developments in consumer behavior. As a forward looking indicator, the GfK index is one input used by analysts in the construction of their forecasts of future German retail sales.