Consumer confidence in Germany has continued to decline for the second consecutive month, according to recent data from market-research group GfK. In October, the country's forward-looking consumer-sentiment index is expected to fall to minus 26.5, compared to minus 25.6 in September. This reading falls slightly below economists' expectations of minus 26.0.

Although there are some positive signs for the economy, such as improving expectations for incomes and overall economic conditions in September, consumers are increasingly choosing to focus on savings rather than spending. "Although economic expectations have risen somewhat and both income expectations and the propensity to buy have shown minimal growth, the propensity to save has risen significantly, causing consumer sentiment to fall again," explains GfK consumer expert Rolf Buerkl.

Notably, the index measuring consumers' propensity to save has reached its highest level since April 2011. This indicates that consumers are increasingly concerned about the near-term state of the economy, likely due to persistently high inflation driven by rising food and energy prices. Buerkl believes that any chances of a recovery in consumer sentiment have now fallen to zero.

To improve domestic demand, Buerkl believes that falling inflation is necessary; however, it remains uncertain when inflation can be brought down to the European Central Bank's target of 2%. The recent quarter-point rate increase by the ECB is likely to further impact household incomes in the meantime.

Overall, these findings highlight the ongoing challenges for Germany's consumer confidence. The weak economic picture and concerns about inflation are leading consumers to prioritize saving over spending, which could continue to weigh on economic growth in the coming months.

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