Consumer confidence in Germany cautiously increases, yet consumers remain cautious in their spending habits.
Rising German Consumer Sentiment Remains Fragile Amid Uncertainty
German consumer sentiment has increased for the third month in a row in May, with the GfK Consumer Climate index projected to reach -19.9 in June 2025, up from a revised -20.8 in May. Despite the improvement, the index remains deeply negative, reflecting ongoing apprehension among German households.
The sustained increase in consumer sentiment is primarily attributable to stronger income expectations and improved economic outlook; however, this positive trend is tempered by considerable uncertainty and renewed caution in household spending. The willingness to save has risen modestly, while purchase readiness has dipped, contributing to a fragile recovery.
Rolf Bürkl, a consumer expert at the Nuremberg Institute for Market Decisions, explained the persistence of a weak consumer climate. He cited unpredictable trade policies from the U.S. government, stock market turbulence, and fears of another year of economic stagnation as factors hindering consumer confidence. The general economic situation has led people to prioritize savings.
Household savings increased by 1.6 points in May, reversing part of the April decrease. The rise in saving indicates that despite the increase in income expectations and economic optimism, consumers remain cautious.
Consumers' income expectations have trended upward for three months running, reaching a high of 10.4 points in May – the highest level since October 2024. The improvement is attributable to strong wage deals and a slight reduction in inflation. The public sector pay deal, which includes a 3% increase this year and an additional 2.8% in 2026, has provided support for purchasing power. Inflation eased to 2.1% in April, down from 2.2% in the two preceding months.
Despite stronger finances, German households appear hesitant to boost their spending. The willingness to buy index decreased by 1.5 points in May, reversing part of the gains seen earlier this year. Concerns over job security and geopolitical instability continue to cast a shadow on consumer sentiment, as rising unemployment and job loss fears deter discretionary purchases, even as real incomes improve.
Economic expectations have risen for the fourth consecutive month, reaching a two-year high of 13.1 points in May. The sustained rise indicates that consumers are tentatively hopeful about a broader economic recovery, despite the lingering threat of stagnation.
The German Council of Economic Experts forecasts no GDP growth for 2025 but anticipates the economy will expand by 1% in 2026, under the assumption of stabilization in domestic and global conditions.
Futures on the DAX suggest that the German stock market is expected to open relatively flat on Tuesday, after gaining 1.7% on Monday. The bounce was fueled by Donald Trump's decision to delay steep tariffs on EU goods, easing trade tensions. The U.S. President postponed a planned 50% tariff hike, initially scheduled for June 1st, pushing the deadline back to July 9th, following a phone call with European Commission President Ursula von der Leyen on Sunday.
The reprieve is significant for Germany, as its export-focused economy heavily relies on the U.S. market for key sectors such as pharmaceuticals, industrial machinery, and automotive components. The euro traded at $1.1385 on Tuesday, remaining unchanged for the day. On Monday, the single currency hit $1.1418, its highest level in a month.
Sources: GfK Consumer Climate report, Federal Statistical Office
The fragile recovery in German consumer sentiment is influenced by stronger finance and business improvements, such as increased income expectations and economic optimism. However, lingering uncertainty and renewed caution in household spending are causing consumers to prioritize savings and remain hesitant about boosting their spending.
