Western Europe is seen as offering the worst prospects for retail growth

Western Europe is seen as offering the worst prospects for retail growth

A positive change in retail sales is expected over the next 12 months, with growth in North America, the Middle East, China and Africa offsetting a slowdown in some global regions, according to findings from research revealed at the World Retail Congress by Monash University. Most notably, Western Europe is seen as offering the worst prospects for retail growth.

The findings were published at the opening of the World Retail Congress 2014 in Paris yesterday (29 September). One key speaker was Dr Ira Kalish, chief global economist for Deloitte, who gave a detailed overview of the global economic outlook for retailers. His thoughts on how the economic landscape in major markets is likely to shift in the coming years, and the potential impact this will have on retailers, are outlined below.


  • "The good news is, it has come out of a deep recession. The bad news is it isn't growing very much so the economy is in pretty bad shape. This mainly has to do with the credit market and it reflects the fact that commercial markets are laden with debts. That's not leading to economic growth and very slow growth in consumer spending. That has led to high unemployment and low deflation." 
  • "If you look at retail sales, right now retail spending is lower than it was in 2010 so it's in pretty bad shape. Growth is mainly coming from exports and not domestic demand and consumer spending. There has been very little income growth, there is a lot of slack in the labour market, and consumers haven't had lots of access to credit, especially in Southern Europe." 
  • "The Central Bank is embarking on a new policy to try and boost inflation. This has boosted interest rates, and direct lending to commercial banks that will, in turn, lend to the consumer. A type of mini quantitative easing. Unfortunately, this hasn't got off to a good start. In the first round of offering of loans to commercial banks, they didn't think there was much market for lending. So it's not clear if this new economic policy will be effective or substantial enough to get the job done." 
  • "Germany is a relative star and, with France, are the strongest players. Italy and Spain have been weak players over last six years." 
  • "In Germany, the problem, however is that it's not really growth and most, if any, has been from exports. This German government is starting to back-track on some of the economic reforms that help stimulate the economy, and instead are concentrating on austerity which is having a negative impact on spending and the rest of Europe." 
  • "Germany is also exposed to more risk from Russia. Around 6,000 German companies have invested in Russia. If these troubles get worse, it could push Germany and the rest of Europe into recession." 
  • "France is also hoping to implement reforms. Nobody is happy with Msr Hollande and, because of uncertainty about reforms being implemented, investment is low and the economy is not growing. Fortunately, fundamentals for France are good and it has some strong global dynamic companies. If they do implement the reforms they can grow faster. They need a combination of that and some inflation in Europe." 
  • "In Italy, president Matteo Renzi is also struggling to implement reforms. The country's political systems are more focused on reforming politics and then the economy. Meanwhile, the economy is not growing and it has got debt inflation and declining GDP. This could create a fiscal problem down the road. It needs dramatic reform." 
  • "Spain has surprising economic strength. There has been a substantial improvement in competitiveness, and very low bond yields reflect investor confidence. If there is one positive story in Europe it would be Spain. Ireland is also looking very good but the outlook for the Eurozone is trouble at best." 
  • "In the UK there has been a strong revival of the economy but it's not clear how sustainable that is because factors such as exports and more consumer spending are not taking place. There is a risk of a housing bubble and export has not performed well, and there are also lots of political issues. The uncertainty could have a chilling effect on investment in the UK. For now they are doing well but there are declining wages and weak exports. There are lots of potential risks right now."


  • "In the US, the strength of the economy and inflation have started to rise, and now the focus is on raising short-term interest rates. Inflation still remains below the target of 2%, and there is still a lot of slack in the job market, so it seems likely the Fed will wait until middle of 2015 before they raise interest rates. This might have a negative effect on housing." 
  • "Job market growth has not happened. It is much better, but the bad news is that there are a lot of discouraged workers out there. Hence, big increases in student debt. 
  • "Consumers are spending moderately, there is reduced debt, and improved cash flow but weak income growth. Why aren't businesses spending? They are holding on to a lot of cash and using it on stock buybacks. For a long time there was a lot of uncertainty, and there is still a lot of excess capacity so they don't feel they need to invest. There are also tax reasons for not investing." 
  • "My expectation is that with the strengthening of the US economy we are going to see a pick-up of investment spending in the next year or two." 
  • "Next year will be a lot better than last year. There will be no headwinds from fiscal policy, there has been investment in energy, a revival of the manufacturing sector, and pent-up demand for new homes and improved credit markets."


  • "The economy has slowed down substantially and it is now more a middle-income country. The biggest challenge China faces is debt. That increase in money supply hasn't fuelled inflation but asset price bubbles and lending outside the normal banking channels. A lot of this is unregulated and potentially dangerous. It is to do with the shadow banking system. The problem is that banks have put all the risky stuff off their balance sheets." 
  • "This lending will lead to losses and will ultimately affect the financial health of banks and set the stage for a financial crisis. The government will force a cut-back on lending, which will lead to slower economic growth. That could have serious ramifications for social stability and the health of the global economy." 
  • "This lending has distorted the Chinese economy. Investment is almost half of GDP, something you don't see anywhere else in the world. These numbers need to cross again to return China to a normal economy. It's not clear if that will happen soon enough." 
  • "China will become a consumer market if they do the right things and reform like they've talked about. We'll see that number go up, but it's contingent on the implementation of reforms that they haven't yet acted on." 
  • "We have seen a labour shortage but that has started to decline. That has contributed to a substantial increase in wages and forced low wage manufacturing to move to Vietnam. We will see reforms, it's just a question of how fast and how effective."


  • In Japan, the government is also struggling to reform. Female labour participation is a top priority. What is really needed is more liberalisation and reforms of the economy, which haven't really taken place. Another tax increase is in the pipeline and the situation is very uncertain. A change in female participation in the labour force would boost economic growth, resolve pension issues and change lifestyles."


  • "For a while, over the past few years, several major markets like Turkey were growing very rapidly, and in some instances were said to be the new China. They have all slowed down substantially." 
  • "In Latin America, Brazil and Mexico are moving in different directions. Brazil has lost its competitiveness while Mexico has not. Although Mexico is not growing right now, the outlook is good. Brazil needs to engage in market opening reforms but we're not seeing that at the moment. There is a lot of uncertainty and pessimism about Brazil, which is having a negative effect on the retail market. That could become problematic if the economy fails to grow."


  • "The new Prime Minister Modi wants to attract ex-pats to invest in India and help revive the economy. The goal is to free the market in order to spur investment. 
  • "There hasn't been a lot of follow-through in terms of reforms, but there is uncertainty on whether he will focus on economic reforms or foreign policy. They are in a sweet spot in terms of demographics, however. But this is another country where there is uncertainty about policy."


  • "The economy was already weak before the Ukraine crisis, but sanctions will hurt over time. In the short term, it has been the loss of business confidence, capital flight, and downward pressure on the economy, and that in turn has hurt investment. As such, the economy has slowed down and may be moving into recession."