The August survey confirmed a modest improvement in confidence in mid-quarter but expects this to be reversed in September. From a slightly weaker revised minus 24.6 this month, the climate indicator is forecast to slip to minus 25.5, some 1.2 points below the market consensus.

Income expectations in August were down 6.4 points on the month at minus 11.5 although they still stand a tidy 33.8 points higher than a year ago. Consumers were also more pessimistic about the economic outlook with the sub-index declining from 3.7 in July to minus 6.2, its lowest reading so far in 2023. Rising insolvencies up 19 percent on the year to May appear to be having a negative effect. Not surprisingly then, the propensity to buy similarly worsened and by nearly 20 points to minus 17.0. Buying intentions had stagnated for much of the year at historically weak levels so the August drop bodes particularly poorly.

In sum, household confidence remains in the doldrums and will offer minimal support to consumer spending over at least the near-term. The probability of a renewed decline in German GDP this quarter has just got slightly higher. To this end, the German ECDI stands at minus 41 and the ECDI-P at minus 48, indicating that overall economic activity is already falling well short of market expectations.

Consumer climate is expected to hold steady at minus 24.3 in September after minus 24.4 in an August report that saw improvement in income expectations but nevertheless remained historically weak.

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.