German Retail Sales Expected to Decline Steeper in 2023 Amid Rising Inflation

German retail sales are projected to experience a greater decline than initially anticipated in 2023, as reported by the German retail federation HDE. Consumer spending is expected to be squeezed due to high inflation levels. The HDE stated that retail sales are estimated to decrease by 4% in real terms, revised from the previous forecast of a 3% contraction. Although data from May indicated a 0.4% month-on-month growth in Germany’s real-terms retail sales, there was a year-on-year decline of 3.6%, with notably weaker sales in the food sector.

HDE President Alexander von Preen expressed his concerns at a press conference in Berlin, describing the current year as the most challenging in many years. He attributed the pressure on the retail industry during the first half of the year to significantly higher energy and procurement costs, as well as weak private consumption. Despite these difficulties, von Preen remains optimistic about a more positive situation in the latter half of 2023, anticipating improved stability.

A survey conducted by the HDE revealed that 35% of retailers anticipate a decline in sales during the second half of the year. Furthermore, just over one in three retailers expect sales to surpass the figures of 2022 for the entirety of 2023. High energy prices were identified as a major concern by businesses, leading von Preen to call on the German government to establish fair prices for all companies, rather than solely providing relief to energy-intensive industries.

Germany experienced an inflation rate of 6.4% in June, according to the German statistics agency Destatis, surpassing the 6.1% recorded in May. This upward trend in inflation, coupled with persistent price pressures, is significantly impacting consumers. A quarter of respondents in the HDE survey expressed uncertainty about their ability to make ends meet, and 45% stated that they would curtail their spending due to soaring food prices. Stefan Genth, Managing Director of the HDE, highlighted the consequential change in consumer behavior, with individuals opting to purchase less and substitute costlier items for more affordable alternatives. Genth emphasized that as retailers depend on private consumption patterns, the sector is adversely affected by rising consumer prices and declining real incomes.