German retailers' sentiment clouded over in December, according to a survey released on Thursday, as Christmas shopping failed to offer a boost and expectations for the coming months remained gloomy.

The Ifo economic institute said its business situation indicator for retail slumped to -12.1 in the final month of the year, from -8.8 in November.

"For many retailers, business in the first weeks of the holiday season wasn't as good as they had hoped," Ifo expert Patrick Hoeppner said in a statement.

Europe's largest economy has seen inflation steadily slow over 2023 - coming in at 2.3% in November after double-digit highs late last year - and there is some indication that consumer sentiment is improving.

However, inflation could rise again at the start of the new year as a more fiscally restrained 2024 budget promises cuts to certain subsidies and new taxation measures.

"Customers continue to exercise noticeable restraint, and this is likely to give retailers a difficult start to 2024," Hoeppner said.

"However, falling inflation and rising wages and salaries are likely to boost purchasing power and ensure more retail demand over the course of the year," he added. (Reporting by Rachel More; Editing by Michael Perry)