Germany’s GfK Consumer Confidence Index edged higher for January, signaling slight improvement but highlighting lingering economic uncertainty. The index rose 1.8 points to -21.3, recovering from December’s -23.1, the lowest reading since May. Despite beating expectations of -22.5, it remains deeply below pre-pandemic levels.
The modest improvement was driven by gains in income expectations, which rebounded 4.9 points to 1.4 after a sharp drop in November. Willingness to buy also improved, rising 0.6 points to -5.4, though it remains subdued. The willingness to save fell by six points to 5.9, reflecting reduced caution among consumers.
“Consumer sentiment remains at a very low level,” said Rolf Bürkl of the Nürnberg Institute. “High food and energy prices, alongside growing concerns over job security, continue to weigh heavily on sentiment.” Economic expectations for January stayed stagnant at 0.3, marginally up from December’s -3.6.
DAX Declines Amid Fed’s Hawkish Signals
The DAX index fell 0.9% to around 20,000 points on Thursday, marking its fifth consecutive session of losses. Infineon AG led the decline with a 3.5% drop, followed by Vonovia AG (-2.4%) and Continental AG (-2%). However, MTU Aero Engines AG and Rheinmetall AG gained 0.8%, offering slight relief.
European markets mirrored the DAX’s slump. The Euro STOXX 50 fell 1.1%, France’s CAC 40 dropped 1.2%, Italy’s FTSE MIB declined 1.3%, and Spain’s IBEX 35 slid 1.6%. Dutch semiconductor giant ASML Holding tumbled 3.9%, leading losses, while Banco Santander and Vivendi also fell by 2.9% and 2.7%, respectively.
The declines followed hawkish signals from the US Federal Reserve, which raised inflation expectations for 2025 to 2.5% from 2.1%. The Fed also signaled a slower pace of rate cuts, reducing the projected number for 2025 from four to two.
Fed’s Outlook Fuels Investor Caution
Fed Chair Jerome Powell emphasized a “new phase” of monetary policy, with rates nearing neutral territory. “The Fed’s approach in 2025 appears more cautious, considering persistent inflation and potential economic pressures,” said Rogier Quaedvlieg of ABN Amro.
Chris Turner of ING noted that President Trump’s policies might lead to higher hurdles for rate cuts next year. European equities face additional pressures from sluggish growth and looming tariff fears, further exacerbating investor risk aversion amid restrictive global monetary policy.