Consumer sentiment took a notable downturn in December, driven by plummeting income expectations and heightened saving tendencies. The GfK Consumer Climate index fell 4.9 points to -23.3, some 5 percentage points below the consensus forecast and mirroring December 2023 levels, signifying stagnant consumer confidence over the past year.

Economic uncertainty looms, with recession fears mounting as job insecurity grows due to industrial layoffs, production shifts abroad, and rising insolvencies. The economic outlook indicator fell for the fourth consecutive month, at minus 3.6 points, its lowest since February 2024.

Income expectations suffered a steep decline, dropping 17.2 points to minus 3.5, a 9-month low. With wage increases unlikely to offset inflation, real income growth appears unattainable, deepening consumer pessimism. Simultaneously, the willingness to buy fell slightly to minus 6 points, significantly lower than pre-pandemic levels, despite a year-over-year improvement.

As saving tendencies rise by 4.7 points, the cautious consumer behaviour reflects growing concerns over economic instability. The minimal GDP growth forecast for 2025 of just 0.4 percent underlines the challenging economic environment. The latest update leaves the RPI at minus 32 and the RPI-P at minus 52. This means that economic activity in general remains well behind market expectations.

Consumer sentiment has been recovering but forecasters expect the December Gfk reading at minus 18.3, unchanged from November but and well up from minus 21.0 in October.

Note that the release time for today's report has been postponed until 4:30 p.m. EST (2130 GMT).

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.