When consumption collapses, this usually leads to a recession. In Germany, price-adjusted retail sales have fallen significantly. In Switzerland, on the other hand, they have increased slightly. Despite high consumer spending, consumer sentiment has bottomed out.
Food prices have risen sharply in Germany, and consumers are buying less.
Inflation has spoiled the Germans’ mood to buy. According to preliminary information from the Federal Statistical Office, price-adjusted retailers turned over almost 9 percent less in June 2022 than in the same month last year.
It’s different in Switzerland: Corona, the Ukraine war and the looming energy shortage don’t seem to prevent people in this country from continuing to spend their money. In any case, this is how Swiss retail sales are presented, which rose by 1.2 percent in real terms in June compared to the same month last year.
Gap between nominal and real change in turnover
The German retail trade recorded a particularly sharp drop in sales for non-food items (real minus 11.1 percent), as consumers initially save primarily on non-essential products. These include clothing, furniture and books. On the other hand, turnover in the Swiss retail trade with non-food items almost stagnated. However, the development is still slightly positive (real plus 0.4 percent compared to the previous year or plus 1.8 percent when adjusted for sales and public holiday effects).
The large difference between the inflation-adjusted (real) and unadjusted (nominal) sales losses in Germany is also striking. If inflation is taken into account by calculating what sales would have been if prices had not changed, the drop in sales in Germany is much greater than if the unadjusted data were used. The Germans now even seem to be spending a little less money than a year ago and can therefore buy much less because of the high inflation. In Switzerland, on the other hand, the gap between the real and nominal change in sales is much smaller because of the much lower inflation.
According to the statisticians, a large difference between price-adjusted and non-price-adjusted rates of change reflects the poor consumer climate in Germany. German consumers have been used to low food prices for a long time and react accordingly sensitively when they rise.
In addition, prices in Germany have risen much more than in Switzerland. In July 2022, food prices in Germany rose again by around 15 percent compared to the same month last year. In contrast, food prices in Switzerland have risen comparatively little by around 2 percent.
Consumer spending increases
The image of the Swiss who are more willing to spend is supported by Data of the Monitoring Consumption Switzerland project, which are collected with higher frequency. Behind it is a team of economists from the University of St. Gallen and the University of Lausanne. In cooperation with the payment service providers SIX and Worldline, they record on a daily basis how much money the Swiss spend using debit and credit cards and mobile payments and, in some cases, how much cash they withdraw from ATMs.
Expenditure for the entire year to date is higher than in the same period of 2021 and increased by 12 percent in the last week of July compared to the same week in the previous year. However, they also include spending in restaurants and hotels as well as for other services, where the Swiss have recently been particularly willing to spend, probably due to the summer holidays and the good weather. However, catch-up effects are also likely to play a role, after all corona protection measures were lifted just a few months ago.
If you only look at spending in the food trade, these were recently around 11 percent higher than a year ago, and for other goods they rose by 6 percent. These data are not adjusted for inflation; inflation in June and July in Switzerland was constant at 3.4 percent compared to the same month last year. The consumption data may also overstate the development somewhat, as these items only take card payments into account. Nevertheless, they point to a slight increase in expenditure in the retail trade.
Overall, the signs in Switzerland currently appear somewhat more positive than in Germany. the consumer prices remained stable in July, and purchase price indices compiled by the professional association procure.ch together with Credit Suisse indicate a significant relaxation in purchase prices. This could help to further defuse the inflation problem.
Bad consumer mood
However, the fear that inflation could still pick up speed has also taken root among the Swiss population. According to one Seco survey In July, the consumer sentiment index fell to its lowest level ever recorded. Consumers are particularly negative about future price trends and their resulting financial situation.
If the Swiss are as cautious as the Germans in the coming months, this could have consequences for general economic development. Klaus Abberger, economics expert at the KOF economic research center at ETH Zurich, assumes that consumption will be weaker in autumn and winter, which is likely to be a normalization in part. He does not expect a major contraction at the moment, but the risks are very high due to geopolitical uncertainties and energy prices.
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