About one week ago, the statistical bureau of the European
Union, Eurostat, presented the retail sales data for the European Union. Although there
was a small, negative hickup in the retail sales data in March 2015, there has been a general
improvement of this data during the last twelve months, all over Europe.
Of course this development is good news and it could be a very important
sign that the economic crisis, which started in 2008 and already lasts for
seven years, is finally getting over. And it is definitely a sign that the
consumers are becoming more confident and start to spend a larger part of their
income on consumption goods again, instead of hoarding it at the bank or spending it mainly on fixed expenses.
Yet, before you raise the flag and organize a party; how
good are those retail sales data within the Euro-zone anyway?
To find that out, I took the Eurostat retail sales data for
the eight largest economies within the Euro-zone; not more than eight
countries, in order to keep those retail sales data clearly distinguishable.
And I particularly took the retail sales data from Euro-zone countries, as
there is no influence from national, monetary policies and/or central bank actions,
like you would have in countries like the United Kingdom, Poland and Sweden,
which have their own currencies.
When we compare the current data of those eight, leading economies
with the retail sales data of 10 years ago (2005), it is shocking to see how
much impact the Euro-crisis has had on retail sales.
In the following table (data courtesy of Eurostat), I
compare the indexed retail sales data from the first three months of 2005 with
those of 2015 (Index: January 2005 = 100).
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| Retail sales results in the 8 strongest Euro-zone economies 2005Q1 versus 2015Q1 Table by: Ernst's Economy Data courtesy of Eurostat Click to enlarge |
What is perhaps not surprising for most readers, is that two
prominent members of the South-European peripheral countries – Spain and Italy –
had a substantial decline in their consumer spending, since January 2005.
Everybody
knows the story about the so-called PIIGS countries (Portugal, Italy, Ireland,
Greece and Spain) and the troubles they had over the last five years; this included issues like a massive state debt, massive fiscal deficits, massive financial
issues (i.e. ‘saving the banks’) and/or
soaring unemployment. Particularly Spain suffered from a bedazzling
(youth) unemployment and to a lesser degree Italy did too. So that makes sense.
What is rather surprising, however, is how poor the sales
data in the economic powerhouses Germany and The Netherlands are, in comparison
with 2005. Although these countries belong to the strongest economies in the Euro-zone, this is not visible at all in the retail data.
Since March 2005, Germany had a very poor increase in retail
sales of only 1.25%, in spite of the country’s successes with the exports of goods
and services and an extremely low unemployment rate of only 4.7% in March 2015.
So in spite of the fact that almost everybody has a job in
Germany and the economy seems to do fine overthere, the people hardly buy more
goods in the retail stores than they did in 2005.
Even worse are the data in exports behemoth The Netherlands.
Since March 2005, the country showed a decline in retail sales of 2.88%, in
spite of the relatively low unemployment of 7.0% and the fact that the Dutch
economy and especially Dutch exports are doing fine these days.
In comparison, in Austria, Belgium, economic ‘problem child’
France and Finland, the retail sales are respectively up with 4.81%, 8.16%,
14.7% and 15.02% since 2005.
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| Retail sales results in the 8 strongest Euro-zone economies from 2005 - 2015Q1 Chart by: Ernst's Economy Data courtesy of Eurostat Click to enlarge |
So the strange phenomena occurs that two of the strongest
economies in the Euro-zone – Germany and The Netherlands – are among the worst
performing economies, when it comes to retail sales.
Is that coincidence? Or
does it have to do with the monomanic focus of these countries on exports and –
to achieve these exports successes – wage restraint or even wage reduction?!
And is there a more general correlation between good
achievements in exports and poor retail sales?
To find this out, I collected the balanced imports and exports
for goods and services of these same eight countries. I think that the data
speak for themselves.
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| Exports versus imports of goods in the 8 strongest Euro-zone economies 2005 - 2015 Chart by: Ernst's Economy Data courtesy of Eurostat Click to enlarge |
The best performing countries with respect to the exports of
goods (see the aforementioned chart) are Spain and Italy; not coincidentially the countries with the worst
development of the retail sales.
The countries at last having more imports of goods than
exports showed in general better retail sales results. In this chart, Austria is a
positive outlier (more exports than imports and still quite good retail sales
results) and Germany is a negative outlier (more imports of goods than exports
and still quite poor sales results).
These data make sense. Spain and to a lesser degree Italy
suffered from massive unemployment during the last seven years (these days the unemployment rates are still 23% and 13% for respectively Spain and Italy) and one can
expect that unemployed people, looking for a better future, are nowadays willing to
accept jobs at much lower wages than they would have done ten years earlier.
The result of this development will be that the wage
expenses will drop dramatically in these countries and the export position will
improve just as dramatically.
However, with generally lower wages people will have less
money to spend on consumption and shopping, even when they have a job; this is probably
the reason that you find this development back in the retail sales data of these two countries.
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| Exports versus imports of services in the 8 strongest Euro-zone economies 2005 - 2015 Chart by: Ernst's Economy Data courtesy of Eurostat Click to enlarge |
When we look at the second chart with the balanced imports
and exports of services, we suddenly get a hunch of where the mediocre retail
sales results of Germany might come from.
Although Germany is currently a net importer of goods, it is
definitely a net exporter of services with a 22% surplus on the trading balance, as you can see in this chart.
Even though some
services are so specialistic that the wages probably do not matter much (for
instance in case of high end commercial and financial services), I suspect that
the restrained wage development in Germany declares its export successes in the services area and at the same time its poor retail sales results, as these are two sides of
the same coin. The same is probably true for The Netherlands.
Again Austria is an outlier here, but especially in this chart
it is visible that Austrian exports and imports are increasingly balancing out.
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| Exports versus imports of goods and services combined in the 8 strongest Euro-zone economies 2005 - 2015 Chart by: Ernst's Economy Data courtesy of Eurostat Click to enlarge |
The combined charts of these eight countries prove my point superfluously, which brings me to the following conclusion:
The best way for countries to improve their export position is by restrained or
even lowered wages, when everything else does not change and no great inventions or developments have been made. This is probably what has happened in Spain, Italy, Germany
and The Netherlands.
What also seems clear from all these charts, is that improved exports are killing
for the domestic retail sales, as financially starved people – due to long-term wage restraint and wage reduction – have less money to
spend on consumption.
This makes it a very hard choice for governments: do we
financially starve people to improve our export position, through the active and passive promotion of wage restraint? Or do we keep the wages up in
order to save our domestic economy and perhaps lose our export position. It seems clear
for which options Spain and Italy chose during the last five years; and really I can’t blame them.
However, the governments in The Netherlands and Germany
should ask themselves how sensible their export strategy is, when it kills their
domestic retail industry?! That is a very important question, in my humble
opinion.
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