Consumer Sentiment on the Rise in Düsseldorf, Germany as Summer Approaches
Consumers in Düsseldorf, Germany are gearing up for the upcoming summer with increasing optimism, as indicated by the HDE Consumer Barometer for June reaching 9886 points, the highest level since August 2021. This rise in consumer sentiment is driven by growing economic and income expectations, coupled with a slight increase in purchasing tendency. The barometer, calculated monthly by the Handelsblatt Research Institute for the HDE Retail Association, is based on a population-representative survey of around 1600 households. Consumers are asked about their expectations for the coming months, with the responses weighted and included in the overall index.
One of the key reasons for the improved sentiment is the easing concerns about further price hikes, along with the upward trajectory of incomes. Despite a slight increase in inflation to 2.4 percent in May, it remains significantly lower than the nearly nine percent levels seen in the autumn of 2022. The European Central Bank's planned reduction of interest rates appears to assure consumers that the inflation risks are under control.
Real wages are on the rise, particularly driven by increases in service costs. Year-on-year service expenses went up by 3.9 percent, while goods in commerce saw a modest 1 percent increase. Energy prices even dipped slightly compared to the previous year, with food costs rising by 0.6 percent, below the general inflation rate.
Notably, many consumers witnessed significant salary bumps in the first quarter, with nominal wages rising by 6.4 percent from the previous year. Much of this increase can be attributed to the payout of inflation bonuses and wage hikes in various sectors, including public administration, defense, education, and social security.
However, despite the robust wage growth, real wages in the first quarter of 2024 still trail behind the levels at the beginning of 2018, indicating a lag in income and wealth accumulation. The aftermath of the pandemic led to a decline in real wages for three consecutive years, only witnessing a slight uptick last year. Consequently, private consumption saw a significant decline, persisting even into the first quarter of 2024.
This decline in consumer spending has taken a toll on the German retail sector. While sales saw a marginal increase in the first four months of the year, the sentiment remains overall negative. The Ifo Business Climate Index for the retail sector indicates a predominantly pessimistic outlook.
Expectations for the upcoming months are mixed across different retail segments, with the household appliances, textiles, DIY, and interior decoration sectors facing challenges, while the internet and mail order trade, as well as the retail sectors dealing with books, sports, and toys, exhibit a relatively positive sentiment.
Despite the improving consumer outlook, concerns linger about the overall economic growth in the upcoming months. Projections by the Federal Ministry of Economics suggest minimal growth, with real GDP expected to increase by just 0.1 percent in the second quarter compared to the previous quarter. As consumers navigate these economic landscapes, the question of 'How much money is enough?' remains a pertinent one, with psychologist and financial coach Monika Müller shedding light on the complexities underlying this query.
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