The reading is broadly in line with expectations from economists polled by The Wall Street Journal.

“The third increase in a row indicates that consumer sentiment is slowly working its way out of the depression,” GfK’s consumer expert Rolf Buerkl said. “The light at the end of the tunnel is getting a little brighter”, he said.

Despite recent gains, sentiment remains very subdued and close to its all-time low of minus 42.8 registered in October.

The improvement in confidence was mainly driven by the government’s energy price relief measures, which will come into effect in January and subsidize gas and electricity prices for most households and businesses.

GfK uses data from subindexes from the current month to derive a sentiment figure for the coming month. In December, the three main components posted gains, the data showed.

Income expectations rose for a third consecutive month due to lower energy prices, the government’s relief package and hopes that rising salaries will partly cushion the current fall in real incomes.

Expectations for the general economy also improved slightly even as German consumers continue to assume the country will slip into recession in 2023. However, the economic downturn is likely to be less severe than was feared a few months ago, GfK said.

Consumers’ propensity to buy increased slightly, but German households’ reluctance to buy big-ticket items remained strong as uncertainty outweighs a still resilient perception of the labor market, the report said.

“The recovery of the consumer sentiment, as we are currently experiencing, is still on shaky ground,” Mr. Buerkl said. “If the geopolitical situation were to worsen again, leading to significantly higher energy prices, the light at the end of the tunnel would very quickly become dimmer again or even go out altogether,” he said.

The survey was carried among 2,000 individuals between Dec. 1 and 12.

Write to Xavier Fontdegloria at xavier.fontdegloria@wsj.com