The business climate for German retail firms fell sharply in February, according to the Ifo Institute in Munich. The gauge dropped to -27.7 points, down from -24.1 points in January. Companies reported that their current situations were more cautious than the previous month, and expectations for the near‑future remained bleak. “Retailers started the new year on a restrained footing” said Ifo expert Patrick Höppner. “If geopolitical risks continue and energy prices rise, consumer sentiment could be dampened, adding pressure on retailers”.
The cooling extended into many retail segments. Furniture chains and clothing retailers reported further downturns, whereas grocery stores and car dealerships saw a slight improvement. These figures were gathered before the escalation of the conflict in Iran at the end of February. “Overall, the mood in retail remains largely gloomy for both wholesalers and retailers” Höppner added, noting that retailers viewed their current situation less favorably than firms in manufacturing, services or construction, and that their expectations were especially pessimistic.
In February, somewhat more retailers planned to raise prices in the coming months, with furniture stores and grocery retailers more likely to do so than the retail sector overall. Employment actions skewed toward reductions rather than hiring, and the persistent shortage of skilled labour has recently eased somewhat for the sector.