German consumer confidence reaches two-year high on upbeat pay hopes

The German national flag waves on top of the Reichtstag building in Berlin, Germany, Thursday, Aug. 31, 2023. The Reichstag is the home of the German parliament Bundestag.
The German national flag waves on top of the Reichtstag building in Berlin, Germany, Thursday, Aug. 31, 2023. The Reichstag is the home of the German parliament Bundestag. Copyright Michael Probst/AP.
Copyright Michael Probst/AP.
By Indrabati Lahiri
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German consumers are feeling more upbeat about economic prospects, as well as expecting to be buying more next month.


Consumer confidence in Germany is edging up, according to the newly released German GfK Consumer Climate Indicator for May.

German consumer confidence came in at -24.2, a rise from the -27.3 of April and better than market expectations of -25.9, according to the GfK Group.  

The figure is the highest in two years, boosted mainly by income expectations jumping to their highest number since January 2022, at 10.7 against -1.5 in the previous month.

Furthermore, economic prospects also rose to 0.7, up from -3.1 in April. A desire to buy also stepped up to -12.6 in May, up from -15.3 in April. Similarly, saving tendencies also climbed to 14.9, from 12.4 in the last month, as anxieties about Germany's economic situation still abounded.

Reasons to be cheerful?

Generally, however, consumer sentiment for May seemed to be cautiously optimistic, despite economic worries remaining in some sectors.

Rolf Burkl, consumer expert at NIM said, as reported by GfK: "The stronger increase in consumer sentiment compared to the previous two months is mainly due to the noticeable increase in income expectations.

"Our analyses indicate that income expectations are primarily based on real income development. And the signals here are definitely positive. Rising wages and salaries combined with a recent decline in the inflation rate form the foundation for increasing purchasing power among private households."

German companies are some of the most distressed in Europe

However, although consumer expectations may be quite upbeat, Germany's businesses could still be facing a relatively rocky road, being some of the most distressed in Europe, according to the latest Weil European Distress Index.

Discount stores in Germany remain popular
Discount stores in Germany remain popularMichael Probst/Copyright 2023 The AP. All rights reserved

This has mainly impacted sectors such as retail, real estate, healthcare and industrials, with smaller businesses being significantly more at risk than their larger counterparts, due to the impacts of rising interest rates and lower credit ratings.

Andrew Wilkinson, senior European Restructuring partner and co-head of Weil's London Restructuring practice said in a press release: "Whilst some sectors show signs of recovery, distress levels remain comparatively high.

"With the current macroeconomic indicators presenting a more nuanced picture than previous forecasts, we can expect capital-intensive and highly leveraged businesses to continue to feel pressure.

Smaller firms bearing the brunt

"Those operating in the industrials, retail and real estate sector are bearing the brunt of these pressures. Businesses able to adjust their capital investment strategies will fare better in weathering the storm."

Neil Devaney, partner and co-head of Weil's London Restructuring practice said: "The landscape in European corporate distress is evolving. Whilst geography and sector continue to be important factors in assessing companies' financial prospects, we're seeing the size of businesses having a much greater impact on their levels of distress.

"There appears to be a growing disparity between small and large corporates, with smaller firms having been hit hardest by rising interest rates and liquidity challenges. Those on the cusp of refinancing are feeling this most acutely.

"Whilst larger companies face the same market conditions, they tend to benefit from more diverse funding options and greater liquidity reserves, providing them with more flexibility to manage their capital structures."

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