Favorable consumer mood in Germany reaches highest point in a year
In a recent survey conducted by the German Retail Federation (HDE), it has been revealed that the mood of German consumers is notably positive, reaching its highest level in a year with the consumer sentiment barometer reaching 97.73 points in July.
The improvement in consumer sentiment can be attributed to several factors. Firstly, there has been a significant surge in income expectations, reaching their highest level since October 2024. This optimism around personal finances is bolstered by an increased willingness to make purchases, as consumers show a readiness to spend rather than save.
Moreover, the survey indicates a decline in the propensity to save, signalling rising consumer confidence. This shift in spending behaviour is a positive sign for the retail sector, with the HDE maintaining its forecast of a 2% growth in retail sales for 2025.
Despite the positive trend, the HDE expects the growth in private consumption to be slow, attributing the reduced inclination to make purchases by consumers to lingering economic uncertainties. The federation also notes that consumers remain cautious, with consumption restraint still noticeable.
The optimistic sentiment among German consumers is also influenced by political stability hopes and positive economic expectations following coalition agreements and improvements in economic conditions. However, the financial optimism of consumers could have been dampened by the announced but not yet implemented relief measures by the federal government.
The relief measures announced by the government do not apply to consumers in terms of electricity tax, a decision that has been criticized in the business community. Despite this, the HDE expects the positive trend in consumer sentiment to continue, albeit not gaining significant momentum.
In June, the consumer sentiment barometer stood at 97.35 points, reflecting a slight decline compared to July. The federation attributes the change in consumer spending and saving behaviour to a more pessimistic view of their own income, with expectations regarding their own income situation darkening significantly in July.
In conclusion, the optimistic sentiment among German consumers is primarily driven by improved income prospects, increased willingness to buy, lower savings propensity, positive economic expectations, and political stability hopes. These combined economic and psychological factors have contributed to making consumer mood as good as it has been in a year. However, consumers remain cautious, with consumption restraint still noticeable, and the growth in private consumption is expected to be slow.
Vocational training programs, supported by the community policy, may play a significant role in fostering the growth of small businesses, as the improved financial situation empowers consumers to invest in their education and skills. This trend, if sustained, could positively impact the retail sector, including the sales of equipment and resources necessary for vocational training.
Despite the stimulating environment for entrepreneurs, the slow growth in private consumption may necessitate strategic financial planning from businesses, cautiously considering their expenditure and investments to maintain long-term stability in the face of lingering economic uncertainties.
