Turnover of German retail companies declines despite VAT reduction

Calendar and seasonally-adjusted turnover of retail companies in Germany in July decreased by 0.9 percent month-on-month, according to preliminary results published by Germany’s Federal Statistical Office (Destatis) on Wednesday.

However, turnover in July was slightly up in comparison to February, the month before the outbreak of the coronavirus in Germany. “This is the first time since the beginning of the pandemic that the retail sale of food, beverages and tobacco in specialized stores had a higher turnover in real terms,” Destatis noted.

Sales of the non-food retail sector rose in real terms by 4.4 percent year-on-year. According to Destatis, the largest year-on-year increase in turnover was generated by the internet and mail-order business growing by 15.6 percent.

July was the first month in which German consumers profited from a temporary reduction of the value-added tax (VAT) which was lowered from 19 percent to 16 percent until the end of the year in order to cushion the economic effects of COVID-19 on private consumption.

Last week, the German Retail Federation (HDE) estimated that the VAT reduction would lead to additional retail sales of around 0.5 percent which was a “positive but not a strong effect.” Also, not all product groups and industries would benefit equally.

Despite the temporary reduction in VAT, almost 75 percent of Germans did not intend to change their shopping behavior in the second half of 2020, according to a survey among 6,300 Germans by the Macroeconomic Policy Institute (IMK) published last week.