No, we are not out of the woods yet. Even though some economic indicators and surveys have recently signaled some relaxation, consumer sentiment and private demand in Germany are expected to fall back to the lowest levels of previous years after the turn of the year, if not lower. This is because overall economic consumption can only recover if consumers, based on a robust foundation, view their economic prospects for a foreseeable period as positive, or at least as solidly secured at the bottom. However, this is not the case.

On the contrary: Any glimmer of hope that Germany's economic situation could improve next year – even in comparison with other European countries – has vanished in recent months for a variety of reasons. Once the Christmas trees are disposed of and the festive mood has passed, the gloom will return in full force.

The latest blow against a potential recovery of the economy and consumer sentiment was the decision of Germany's Highest Court (Bundesverfassungsgericht) on November 15th that the second supplementary budget act of 2021 is null and void. This decision meant that the Climate and Transformation Fund, from which many subsidies are paid or should have been paid, was cut by 60 billion euros. This gap in the federal budget must now be filled.

It is not necessary to look into a crystal ball to find out where the government will make cuts – which projects and funding will not be implemented or continued, how much capital it will raise through new debt, or whether perhaps taxes will be increased. It is enough for consumers to know that these measures – in whatever combination and intensity – will lead to a further reduction of the means available to them for consumption. As if skyrocketing food prices, high costs for energy and fuels, and all the other drastically increased expenses had not already brought enough burden on the wallet. This is, to put it mildly, bad news for retail. Because a declining disposable income, combined with bleak economic prospects that cause many citizens to worry about job security, is poison for consumption.

Even if the results of the numerous surveys on how much consumers plan to spend on Christmas gifts should be taken with a grain of salt – the figures are usually unrealistically high – this year's studies show that significantly fewer gifts could end up under the Christmas tree. An unusual conclusion, as the sums have almost always increased in the past. Even in previous crises, the projected expenditure for presents remained stable.

If the results of these surveys were to be realized, it would hit the manufacturers and retailers of toys, books, fashion, and consumer electronics hard. For these sectors, the Christmas business is extremely important. For retailers who have been living hand to mouth so far, meager revenues in this peak season could even mean the end, as they are forced to put on "winter fat" during this time to get through the lean period at the beginning of the year.

But it is not only the dwindling demand, which greatly limits the possibility of raising selling prices, that is burdening retailers. In addition, suppliers are demanding more money for their goods, and personnel costs are rising. Expenses that are not absolutely necessary, such as redesigning the sales area or new software, are only afforded by liquid companies. Yet the liquidity situation of many retailers is deteriorating and is unlikely to improve significantly before 2025. If loans then need to be repaid or refinanced, for example from the pandemic period, it could quickly be over.