German Consumer Sentiment To Hit 2-Year High In May

(RTTNews) - Germany's consumer confidence is set to rise again in May to hit a two-year high as households turned more optimistic about future income, adding to the list of positive indicators that suggests the biggest euro area economy is likely to undergo a very shallow recession.

The forward-looking consumer sentiment index rose to -24.2 in May from a revised value of -27.3 in April, survey conducted by the market research group GfK and the Nuremberg Institute for Market Decisions (NIM) showed on Thursday.

The reading was expected to rise modestly to -25.9. The score hit a two-year high but it remained at an extremely low level, GfK said.

The stronger rise in consumer confidence compared to the previous two months was primarily driven by the noticeable improvement in income expectations. Meanwhile, the propensity to save acted as a drag.

NIM consumer expert Rolf Burkl observed that increases in wages and salary combined with a fall in inflation form the basis for increasing purchasing power among households.

Consumers' income expectations strengthened for the third straight month. The corresponding index climbed 12.2 points to 10.7 in April. The reading was last at a higher level in January 2022.

Falling inflation together with the increase in collectively agreed wages and salaries strengthened the purchasing power of households. At the same time, the propensity to buy index gained only 2.7 points to -12.6 in April. However, the reading stayed at an extremely low level as consumers remain cautious and set aside their resources rather than spending.

The economic expectations index grew 3.8 to 0.7 in April. This was the best score since July 2023.

Despite the third consecutive rise in economic expectations, there is still no sustained recovery in consumer perspective, GfK said.

The propensity to save index remained at an extremely high level. The indicator gained 2.5 points to 14.9 in April.

The recent business sentiment survey from the ifo Institute showed that business confidence rose to a near one-year high in April on brightening expectations and the improvement in current situation. The Purchasing Managers' survey suggested that Germany's private sector expanded for the first time in ten months in April, driven by stronger recovery in services activity.

However, the International Monetary Fund forecast the German economy to expand only 0.2 percent this year before growing 1.3 percent in 2025.