German consumer sentiment set to improve further in March as recession fears ease

Consumer confidence in Germany is expected to improve again in March, posting its fifth gain in as many months, as energy prices moderate and concerns over a deep recession fade.

Germany’s forward-looking consumer-sentiment index forecasts confidence to increase to minus 30.5 in March from minus 33.8 in February, the highest level since July, according to data from market-research group GfK published Friday.

The reading is broadly in line with the consensus forecast from economists polled by The Wall Street Journal.

“Consumer pessimism, which peaked last fall, is fading,” GfK’s consumer expert Rolf Buerkl said. “Despite ongoing crises, such as the war in Ukraine, a weakening global economy, and high inflation rates, consumer sentiment has once again increased noticeably,” he said.

The expected increase in confidence for March is supported by the decline in energy prices and the better-than-expected performance of the economy this winter.

Still, and despite recent gains, consumer confidence remains at a low level by historical standards, well below the minus 6.7 recorded before the Ukraine war began.

“This indicates that private consumption will not be able to positively contribute to overall economic development in Germany this year,” Mr. Buerkl said.

GfK uses data from three subindexes from the current month to derive a sentiment figure for the coming month. These three main components improved in February, the data showed.

Economic expectations posted the largest gain, rising to 6.0 from minus 0.6 a month earlier and exceeding its long-term average for the first time since the Ukraine war began.

“Apparently, consumers, like the vast majority of experts, are of the opinion that a recession in Germany this year can be avoided–albeit narrowly,” the report said.

The index measuring income expectations also rose significantly, to minus 27.3 from minus 32.2, supported by a resilient labor market and the moderation in energy prices.

Still, German consumers expect a decline in their real disposable incomes, GfK said.

Propensity to buy among German consumers also increased in February, albeit at a softer pace. The index edged up to minus 17.3 from minus 18.7, reflecting persistent uncertainty about high inflation.

“Although the extreme pressure on energy prices has eased somewhat recently, inflation will remain high this year and will put further strain on the propensity to buy,” the report said. “If significantly more must be spent on energy and food, fewer financial resources remain for other purchases.”

Write to Xavier Fontdegloria at xavier.fontdegloria@wsj.com

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