German retail sales surprisingly low

High energy and food prices kept Germans out of the shops in July, data showed on Monday, the latest in a series of worrying signs for Europe's biggest economy.

German retail sales surprisingly low
Photo: DPA

Retail sales fell 1.5 percent in July from June, the statistics office said, much more than analyst forecasts for a drop of 0.4 percent. In June, retail sales had tumbled 1.4 percent.

The volatile data is calculated from information provided by seven of Germany’s 16 states, representing three quarters of the retail sector. Overall the volume of sales generated in German shops in July was around the same as in July 2007 – when adjusted for price rises – but food, drinks and tobacco goods were down 2.9 percent, the statistics office said.

July saw oil hit a record high of over $147 while food prices also rose strongly, squeezing household budgets. The “sharp fall … adds to the evidence that the economy is weakening,” Jennifer McKeown at Capital Economics said.

“The data are very volatile but with the three-month average annual growth rate down at minus 0.6 percent, there is no sign of recovery in the German consumer sector,” McKeown said.

The German economy contracted 0.5 percent in the three months to June and economists, in light of the latest poor data, now question whether it could tip into recession, defined as two straight quarters of falling output. Despite the fact that both oil prices, inflation and the euro eased in August, two closely watched surveys last week showed the country’s businesses and consumers becoming ever more pessimistic.

Food prices will continue to rise steadily and charges for electricity and gas “have yet to follow in oil’s footsteps,” Commerzbank economist Ralph Solveen said.


German consumer prices set to rise steeply amid war in Ukraine

Russia's war in Ukraine is slowing down the economy and accelerating inflation in Germany, the Ifo Institute has claimed.

German consumer prices set to rise steeply amid war in Ukraine

According to the Munich-based economics institute, inflation is expected to rise from 5.1 to 6.1 percent in March. This would be the steepest rise in consumer prices since 1982.

Over the past few months, consumers in Germany have already had to battle with huge hikes in energy costs, fuel prices and increases in the price of other everyday commodities.


With Russia and Ukraine representing major suppliers of wheat and grain, further price rises in the food market are also expected, putting an additional strain on tight incomes. 

At the same time, the ongoing conflict is set to put a dampener on the country’s annual growth forecasts. 

“We only expect growth of between 2.2 and 3.1 percent this year,” Ifo’s head of economic research Timo Wollmershäuser said on Wednesday. 

Due to the increase in the cost of living, consumers in Germany could lose around €6 billion in purchasing power by the end of March alone.

With public life in Germany returning to normal and manufacturers’ order books filling up, a significant rebound in the economy was expected this year. 

But the war “is dampening the economy through significantly higher commodity prices, sanctions, increasing supply bottlenecks for raw materials and intermediate products as well as increased economic uncertainty”, Wollmershäuser said.

Because of the current uncertainly, the Ifo Institute calculated two separate forecasts for the upcoming year.

In the optimistic scenario, the price of oil falls gradually from the current €101 per barrel to €82 by the end of the year, and the price of natural gas falls in parallel.

In the pessimistic scenario, the oil price rises to €140 per barrel by May and only then falls to €122 by the end of the year.

Energy costs have a particularly strong impact on private consumer spending.

They could rise between 3.7 and 5 percent, depending on the developments in Ukraine, sanctions on Russia and the German government’s ability to source its energy. 

On Wednesday, German media reported that the government was in the process of thrashing out an additional set of measures designed to support consumers with their rising energy costs.

The hotly debated measures are expected to be finalised on Wednesday evening and could include increased subsidies, a mobility allowance, a fuel rebate and a child bonus for families. 

READ ALSO: KEY POINTS: Germany’s proposals for future energy price relief

In one piece of positive news, the number of unemployed people in Germany should fall to below 2.3 million, according to the Ifo Institute.

However, short-time work, known as Kurzarbeit in German, is likely to increase significantly in the pessimistic scenario.