European retail is finally getting over Covid

Zero percent. Given recently released data for May 2023, German retail sales have grown by exactly 0% in real terms since the last pre-Covid month, February 2020^[1]. In nominal terms, by contrast, thanks to inflation, sales grew by a lot, a whopping 17%. But this is not a sign that consumers are getting more: the quantity of goods they received is unchanged. Yet this does not seem to have bothered the average German too much. In 15 of the 42 years since 1980, retail sales have fallen in real terms compared to the previous year's average. Seen in this light, it is almost positive that German retail sales are stabilizing again, as our Chart of the Week shows.

That is all the more the case when you consider how sharply consumer sales plummeted from their previous highs during the Covid years. The chart alone does not offer sufficient reason to claim that Germany’s stabilization will be sustained. But we do expect that, for a simple reason: while inflation, especially in goods, is already declining, many workers are only now beginning to enjoy the higher wage payments negotiated in recent months. This means that many of them should enjoy an increase in their real purchasing power in coming months. Not only in Germany but other parts of Europe too.

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Different speeds in European retail trade, real, annual growth rate

^{Sources: Haver Analytics Inc, DWS Investment GmbH as of 7/4/23}

The chart also shows how much purchasing dynamics differ within Europe, whether because of divergences in the severity of the Covid slumps diverged or in the government relief measures in the years that followed. Different economic structures might also have been a factor. Spain, certainly, combines both: it suffered disproportionately from the direct and indirect consequences of Covid because of the role of tourism in its economy but is now also benefiting from Europeans' resurgent desire to travel. This boost is then reflected not only in the retail sector but also in other consumer segments, especially services, where we continue to expect a stronger recovery than in retail. In Europe as a whole private consumption should bring growth to Europe again in coming quarters.