Since the peak, which was well above the pre-pandemic trend, the volume of retail sales has declined and is now well below. The decline accelerated in 2022, and the start of 2023 shows no break in this trend yet.

Of course, the value of retail sales skyrocketed last year due to accelerating inflation, but a plateau is now emerging.

February figures were weak in all countries, as all five major markets reported sales declines. Germany and France were the weakest, down -1.3% and -1.5% respectively. In the Euro area, retail trade dropped by 0.8% in February 2023, compared with an increase of 0.8% in January.

This reinforces the view that consumers are still plagued by high inflation and uncertainty about the economic outlook. Consumer confidence has improved slightly recently, but is still at a recessionary level.

While surveys such as the PMI and the Ifo Institute painted a more positive picture of the economy in the first quarter, we have yet to see any signs of this in the hard sales data.

Unless we get a very strong reading in March, retail sales are likely to contract in the first quarter. Of course, retail sales are not necessarily the place to look for signs of an improving economy, as services have outperformed recently and there is some pent-up demand for manufacturing activity. Still, these retail sales figures do not suggest a strong recovery in the economy.