25.07.2024

Sales Trend in the Retail Trade has Improved Recently, but the Current Situation is Gloomy

Retail Business Cycle Report in Cooperation with the Austrian Retail Association

"Easing inflation and rising household incomes have recently improved sales for domestic retailers. Expectations for the coming months are also stable despite the weak domestic business cycle. However, the assessment of the current situation shows a gloomier picture, with retailers probably expecting higher consumer momentum," says WIFO economist Jürgen Bierbaumer.

The domestic business cycle continues to be weak. According to the latest calculations of the Weekly WIFO Economic Index (WWWI), economic output in May and June 2024 was down ½ percent on the previous year, and stagnated in the first two weeks of July.

In the retail trade, both nominal and real sales increases were recently observed again for the first time (April 2024 +4.3 percent in nominal terms, +1.8 percent in volume terms compared to the previous year; May 2024 +2.9 percent in nominal terms, +0.7 percent in volume terms, preliminary value). The positive trend is primarily due to increased sales in the retail sale of food, beverages and tobacco.

The continued slowdown in inflation is also supporting the volume trend. In June 2024, inflation was 3.0 percent (CPI) and 3.1 percent (HICP), once again higher than the euro area average (2.5 percent).

Following a temporary improvement, the mood among Austrian retail companies deteriorated again in June (June –6.3 points, May –1.6 points). The preliminary analysis of the WIFO-Konjunkturtest (business cycle survey) for July also points to a further decline. The result in June is due to a significant deterioration in the assessment of the current situation. This means that the balance is once again below the long-term average. The expectations index, on the other hand, is at the same level as in previous months.

Compared to German retail companies, the current survey results of domestic retailers are nevertheless significantly more positive (June: Austria –9.9 points, Germany –20.3 points).

Domestic consumer confidence has risen recently, but is once again below the level of German households (Austria –12.6 points, Germany –9.9 points). This is due to more pessimistic assessments regarding major purchases in the coming 12 months. Austrian households are also less positive about their own financial situation in the past year than in Germany.

Consumer spending by private households in 2024 will be shaped by two opposing effects: on the one hand, the strong increase in the volume of disposable household income will increase consumer demand, while on the other hand, the continued high interest rate level combined with a deterioration in the labour market will lead to consumers saving, meaning that the savings rate is likely to increase again in 2024.

The current weak economic development is also reflected in the labour market. The number of unfilled vacancies in both the retail trade and the total economy continued to fall and in June was already 27.5 percent below the previous year's level in the retail trade (–17.4 percent in the total economy). Currently, 10,670 vacancies (97,915 in the total economy) cannot be filled promptly.