German sales data bodes ill for growth: analysts

4th May 2010, Comments 0 comments

Volatile German retail sales plunged in March, official data showed on Tuesday, raising the odds that Europe's biggest economy contracted in the first quarter of 2010.

The seasonally corrected drop of 2.4 percent was well below expectations for a slight decrease of 0.2 percent, and pushed the first quarter figure back to its level of early 2009, data from the national statistics office showed.

Germany was then in the midst of its worst post-war recession.

On an annual basis, retail sales were 0.8 percent lower than in March 2009, the Destatis office said.

The data strengthened forecasts that the German economy will record a first quarter contraction when growth figures are published on May 12, analysts said.

"This supports our expectation that the German economy shrunk slightly in the first three months of the year," Commerzbank analyst Simon Junker remarked.

German retail sales data are notoriously volatile, but Junker noted that "the trend since autumn 2008 is still pointing downwards."

In late April however, a survey by the GfK research group found that German consumer confidence had risen, owing to signs that economic activity was picking up.

Unemployment also fell in April to 8.1 percent of the workforce after warm weather began to nurture a recovery.

Germany has avoided a spike in unemployment by partially subsidising shorter working hours, but consumers are still not spending and consumption has remained the economy's weak link.

Last week, the head of the German retail giant Metro, Eckhard Cordes, deplored the fact that "in Germany, whether we have growth of zero or three percent, household consumption is almost always the same."

Many of Germany's neighbours say the government has not done enough to encourage consumption, resulting in repeated trade surpluses with eurozone partners.

Junker pointed out however that retail sales comprise an ever smaller proportion of German private consumption, which he forecast would be better than the sales figures alone suggest.

Auto sales, which are not included in the sales data, posted a strong monthly rise of 3.5 percent in March, UniCredit economist Alexander Koch noted.

He nonetheless felt that "private consumption will almost inevitably be a noticeable drag on GDP (gross domestic product) for the year as a whole."

ING senior economist Carsten Brzeski tempered meanwhile that "if the labour market continues its current trend, fears of job losses should soon stop depressing consumption."

© 2010 AFP

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