25.10.2023

Economic Weakness in Retail Trade Continues, Outlook Slightly Better

Retail Business Cycle Report in Cooperation with the Austrian Retail Association

"In the summer months up to and including September, the weak business trend and the pessimistic mood among domestic retailers became even more strengthened. Most recently, however, surveys indicate that the situation is likely to have stabilised at a low level. Rising real disposable household incomes also point to higher consumer demand in 2024," says WIFO economist Jürgen Bierbaumer.

The domestic economy is in a weak phase. According to current estimates of the Weekly WIFO Economic Index (WWWI), the decline is likely to have continued at present. In September 2023, economic activity was 1.5 percent below the previous year, and in the first half of October it declined by ¾ percent.

In the retail sector, business activity was again subdued in July (nominal +5.3 percent, real ±0.0 percent compared to the previous year) and August 2023 (nominal +3.3 percent, real –2.6 percent). Sales development was again weak, especially in the non-food sector.

Inflation recently continued to decline and stood at 6 percent in September (August 7.4 percent). Price increases remained at a high level, especially in the sectors restaurant and hotels and food and non-alcoholic beverages. At 5.7 percent, the harmonized consumer price index (HICP) was again above the euro area average (4.3 percent).

As in the economy as a whole, sentiment among Austrian retailers has deteriorated further in recent months. In the current survey, pessimism in the retail sector has intensified even further (September –16.8 points, August –14.8 points). The deterioration in the mood of retail companies expressed in surveys relates not only to the current assessment of the situation, but also to expectations for the coming months.

A preliminary analysis of the WIFO-Konjunkturtest (business cycle survey) for October indicates stabilisation at a low level. The retail trade index rises slightly but continues to signal a very weak economic situation.

After the domestic sentiment of consumers has gradually improved since autumn of the previous year (low in July 2022 –33.5 points), the index has dropped slightly again in the last two surveys (September –24.9 points).

With disposable incomes stagnating in real terms due to high inflation, private consumption will only provide minor growth impulses in 2023 (+0.8 percent). For 2024, higher consumer demand from private households is expected again in the wake of the increase in real disposable household income (+1.8 percent).

The stock of unfilled vacancies in the retail sector remains high but is already 20.6 percent below the level of the previous year. Currently, 14,041 vacancies (total economy 106,414) cannot be filled promptly.