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Passers-by in Hamburg's shopping street: "The weakness in consumption is real and fundamental"
Photo: Christian Charisius / dpa
German retailers have weakened, of all things, in the important Christmas business. Their sales fell by 1.2 percent in December compared to the previous month, as the Federal Statistical Office announced. Adjusted for inflation (in real terms), revenue fell even more sharply, at 1.6 percent. This comes as a surprise, as economists had expected slight growth here in previous estimates.
"The renewed decline underlines the weakness of consumption in Germany," said the scientific director of the trade union-affiliated Institute for Macroeconomics and Economic Research (IMK), Sebastian Dullien. Consumers' purchasing power has suffered massively in the past two years as a result of the energy and food price shock in the wake of Russia's war of aggression on Ukraine. “This loss of purchasing power continues to have an impact.”
In 2023 as a whole, sales only grew by 2.3 percent thanks to rising prices. Adjusted for inflation, however, it fell by 3.3 percent. This means that the balance sheet is somewhat leaner than estimated by the statistics office at the beginning of January - the December results were not yet available at that time. This time, specialty food stores such as bakeries and butchers as well as stores for home furnishings, household appliances and building supplies recorded particularly strong losses.
Real sales in food retail fell by 3.9 percent in 2023 compared to the previous year. Since the corona-related record growth of 5.4 percent in 2020, price-adjusted revenues have fallen continuously in the following three years, the statisticians explained. Including the sharp rise in food prices, grocers recorded a strong increase of 5.9 percent.
In the internet and mail order business, which boomed during the corona pandemic, sales fell by 3.9 percent in real terms and by 0.4 percent in nominal terms. The retail trade in textiles, clothing, shoes and leather goods continued its recovery after the slump during the pandemic and generated 2.6 percent more in real and 3.7 percent in nominal terms than in the previous year.
Declining inflation could gradually provide new impetus for private consumption over the course of the year. Ifo economics chief Timo Wollmershäuser sees “first rays of hope.” Data available up to mid-January (credit cards, debit cards, cash) from the provider Mastercard showed an increase in price-adjusted sales in retail and hospitality. Private consumption could therefore increase in the first quarter of 2024. “The revival of purchasing power is likely to be noticeable here, as private household incomes are now rising faster than prices,” said Wollmershäuser.
Citizens face burdens
Economist Dullien was more skeptical. "The weakness in consumption is real and fundamental," he said. Citizens would also face noticeable burdens: the price caps for energy expired at the beginning of the year, and at the same time a VAT of 19 percent is due again in the catering industry. The CO₂ price has also been significantly increased. In the coming months, the VAT on natural gas and district heating will also rise again to 19 percent, and network fees will also rise, which will increase the price of electricity, said Dullien. “A quick turnaround in consumption is not in sight – also because of these burdens,” he predicted.
However, inflation will continue to decline over the course of the year and wage increases will become more noticeable. “Then there should be at least a cautious recovery in consumption, but it will not be enough to lift the economy as a whole out of stagnation in the current year,” says Dullien.
mmq/Reuters