75% of Germans think the high cost of living will remain a major issue in Germany in 2025. Even though inflation has bounced back to more conventional levels, consumers do not yet feel relief and perceived inflation is a source of caution.
As political instability adds uncertainty to Germany’s economic future, Germans have pessimistic macro expectations for 2025. Living in times of polycrisis forces consumers to build resilience to withstand potential adversities. Consequently, they have become used tocautious and bargain shopping to cope with the high cost of living. Based on these changed consumption habits, 67% of Germans are confident they will be able to maintain their standard of living in 2025.
While consumers will remain cautious with their spending and continue to focus on saving, brands are well-placed to explore opportunities to boost mindful spending (eg potential of dynamic pricing in foodservice) and help consumers preserve their spending power. Spending on experiences like holidays and quality time with loved ones serves as a sweet escape in gloomy times, and testifies to another strategy to cope with the polycrisis. This opens up opportunities for brands across categories to engage with consumers to expand brand visibility, for example through cooperations with domestic hotels.
This report looks at the following areas:
- Changes in consumer spending and what areas of spending consumers are most keen to prioritise (2024 vs 2023)
- Expected economic and social changes over the next year (eg cost of living, Germany’s economic growth)
- Behaviours and expectations for 2025, including confidence to maintain own standard of living and expectations to have more extra money to spend on non-essentials
- Attitudes towards the economic situation, including assessment of Germany as a business location
- Top goals for 2025 (eg taking care of own physical and mental health, focusing on relationships)
Germans expect the high cost of living to remain a major issue in 2025. Brands that adapt to changed consumption habits and explore new ways to engage with consumers (eg by tapping into Germans’ wanderlust) can promote consumer spending.
Dr. Jennifer Hendricks, Senior Analyst – Consumer Lifestyles, Germany
Market Definitions
This Report explores behaviours and attitudes of German consumers related to the economic outlook. The following terms are relevant in this context (mainly based/leaning on definitions provided by the OECD and official federal institutes like the Federal Agency for Civic Education):
- Cold progression: refers to a subtle form of tax increase that occurs when a pay rise is entirely consumed by inflation, yet still results in higher taxation
- Financial confidence: consumers’ expected financial situation over the next year or so
- Financial resilience: the ability of individuals or households to resist, cope with and recover from negative financial shocks
- Financial wellbeing: having control over money, ability to pursue life goals, lack of financial stress
- Inflation: a sustained process of monetary devaluation, characterised by general price increases
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EXECUTIVE SUMMARY
- What you need to know
- Opportunities
- Outlook
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OPPORTUNITIES
- Adapt to changed consumption habits with novel partnerships to protect Germans’ spending power
- Respond to the bargain hunt and explore new partnerships in ecommerce
- Forge innovative partnerships to empower low-income households by helping them preserve their spending power
- Help boosting discretionary spending to drive economic growth
- Capitalise on Germans’ wanderlust
- Foodservice: consider the potential of dynamic pricing to attract cautious spenders
- Keep an eye on developments in social commerce to address younger generations’ spending confidence
- Fuel consumption by focusing on consumer wellbeing
- Out-of-home leisure: communicate wellbeing benefits to cater to mental health advocates
- Drive consumer spending by promoting social health
- Learn from Tecate and help Germans meet loved ones in the real world
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CONSUMER
- Changes in consumer spending
- Spending habits remain mainly stable…
- Graph 1: discretionary spending categories that consumers tend to spend money on over the course of the year, 2023 vs 2024
- …but differences relating to financial situation are significant
- Holidays and savings remain among the top priorities
- Graph 2: discretionary spending categories that consumers would most want to continue to spend on if they had to make cuts in their overall spending, 2023 vs 2024
- Be aware of Gen Z’s fading prioritisation of fashion…
- Graph 3: consumers who would most want to continue to spend money on fashion, even if their financial situation meant that they had to make cuts in their overall spending, by generation, 2023 vs 2024
- …accompanied by a growing tendency towards saving
- Capitalise on Gen Z’s growing tendency towards saving
- Financial activity has increased in 2024, yet remains volatile
- Graph 4: financial activity index*, 2022-24
- Financial activity plans show some positive indications compared to a year ago
- Expected economic and social changes over the next year
- Germans have pessimistic macro expectations
- Graph 5: expected economic and social changes over the next year or so, 2024
- The cost of living remains the defining issue…
- …as cost-of-living pressures are still being acutely felt
- Graph 6: perception of the state of the cost of living crisis, 2024
- Perceived inflation is a source of caution
- Be aware of the difference between perceived and actual inflation
- Cost-of-living expectations are impacting consumer sentiment for 2025
- Dampened expectations for economic development have an impact on all considered areas
- Graph 7: consumers who expect selected economic and social factors to deteriorate over the next year or so (NET), by expected changes in Germany’s economy growth (NET), 2024
- Lack of trust in German politics negatively affects consumer outlook…
- …calling on brands to take a stand against societal division
- Allianz counts on the #PowerOfUnity
- Expectations for the mood of the nation remain gloomy
- Graph 8: consumer expectations for changes in the mood of people in Germany over the next year or so (NET), by area, 2024
- Provide mood support with community engagement
- Younger generations are most confident about their savings and investments
- Graph 9: consumer expectations for changes in the value of their savings and investments over the next year or so (NET), by generation, 2024
- Better-off consumers remain more optimistic about their financial prospects
- Graph 10: consumer expectations for changes in own household income over the next year or so (NET), by financial situation, 2024
- Attitudes & behaviours
- Most Germans are confident about maintaining their standard of living, yet concerns remain
- Graph 11: behaviours and expectations towards spending money and budget in 2025, 2024
- Recognise bargain shopping as the new norm…
- …as consumers are learning to better tackle high prices
- Low-income households lack confidence in maintaining their standard of living
- Graph 12: consumers who are confident they will be able to maintain their standard of living in 2025, by net monthly household income, 2024
- Embrace younger generations’ expectations for discretionary spending
- Graph 13: consumers who expect to have more money to spend on non-essentials in 2025 compared to 2024, by generation, 2024
- Expectations for Germany’s future as a business location are not so bright
- Graph 14: attitudes towards the economic situation and the role of brands, 2024
- Break new ground to combat social issues
- Top goals for 2025
- Physical and mental health are top-of-mind in 2025…
- Graph 15: top three goals for 2025, 2024
- …as Germans are exploring ways to cope with the polycrisis
- Support well-ageing with a holistic approach to health
- Germans aiming to focus on their mental health are less likely to engage in leisure activities
- Graph 16: selected out-of-home leisure activities done in the last 12 months (NET), by taking care of own mental health as a top goal for 2025 (NET), 2024
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MARKET DRIVERS
- Key economic figures
- Germany continues to face economic challenges…
- Graph 17: key economic data, in real terms, 2019-26
- …as political instability prevails
- Private consumption remains unstable
- Graph 18: household final consumption expenditure, price, seasonally and calendar adjusted, % change on the previous quarter, 2023-24
- Outlook for corporate investment remains bleak
- Germany’s export economy is facing more difficult times
- Graph 19: exports and imports, values calendar and seasonally adjusted*, € bn, 2023-24
- Inflation
- Germany has seen unprecedented levels of inflation
- Graph 20: consumer price index, 1975-2024
- Inflation has settled to more conventional levels
- Germans remain sensitive to prices in essential categories…
- Graph 21: selected household and lifestyle issues faced in the last two months, 2024
- …as further price increases are in sight
- Wage development and labour market
- Real wages continue to indicate a positive trend
- Graph 22: development of real and nominal earnings and consumer prices, 2020-24
- Unemployment rates remain affected by weak economy
- Graph 23: unemployment rate, original value, 2021-24
- Household finances
- Financial wellbeing is still on its way back to the level before the cost of living crisis
- Changes in financial situation indicate a positive trend
- Graph 24: changes in financial situation compared to a year or so ago, 2022-24
- Financial confidence is still on the path to recovery…
- Graph 25: financial confidence index, 2022-24
- …while Germans remain cautious
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APPENDIX
- Report scope and definitions
- Definitions
- Abbreviations and generations
- Abbreviations
- Generations
- Methodology – consumer research
- Consumer research methodology
- A note on language
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