The Ifo business climate index for the retail sector rose in July to -28.7 points, reversing the decline seen in June, which recorded -32.4 points. While companies assessed their current situation as slightly less pessimistic compared to the previous month, business expectations remain predominantly cautious.
Patrick Höppner, an Ifo industry expert, noted that although retailers have seen an improvement in their business climate for the third straight month, corporate sentiment is still weaker than it was before the conflict escalated in Iran late last February. Many businesses remain highly reserved regarding their outlook for the rest of the year.
The retail climate indicator previously dropped to its lowest points of 2023 during April and May. Höppner attributed this downturn to the rising economic uncertainty caused by the Iranian conflict, which has impacted consumer mood, particularly due to increased inflation risks. Despite this uncertainty, many retail goods saw little price increase during the first half of the year. In fact, according to the Federal Statistical Office’s consumer price statistics for June, food and non-alcoholic beverages were, on average, cheaper than before the escalation of the Iran conflict in February. Nevertheless, the Ifo economic survey indicates that retailers still anticipate rising prices in the months ahead.
Regarding demand, 54 percent of retailers estimated that demand in July was insufficient. Looking at the second quarter, in-store retailers saw less customer traffic than usual for seasonal comparisons at 48.2 percent of companies. Online shops, however, performed better, with only about 25.6 percent of retailers reporting fewer clicks than would typically be expected for this time of year.
