German retail sales jump

German retail sales jump
Photo: DPA
German retail sales posted a surprise jump in August as energy prices eased, but analysts were divided over whether the boost would prevent Europe's biggest economy from falling into recession.

Retail sales adjusted for inflation and seasonal factors jumped by a surprising 3.1 percent in August, a preliminary estimation by the Federal Statistics Office showed on Wednesday.

Analysts polled by Dow Jones Newswires had forecast an increase of just 0.5 percent and and the estimate provided a “small ray of hope in the retail sector,” Commerzbank analyst Ralph Solveen said.

In July, sales had fallen by 1.0 percent in the biggest European economy, the Destatis service said, revising an initial estimate of a 1.5 percent drop. German consumers are traditionally thrifty, and consumption has in past months been one of the economy’s weak links despite falling unemployment and significant increases in wages.

The volatile index is calculated from information provided by seven German states that account for around three-quarters of all sales, but does not include auto and petrol sales.

The news comes after unemployment rates announced this week were found to be at a 16-year low. But despite falling unemployment levels and rising wages, German consumers have lost their spending power as inflation increases the price of energy and food.

On Sunday Finance Minister Peer Steinbrück told the weekly Der Spiegel that because of the US financial crisis, German output would be “significantly” less than hoped in 2009.

“All that is clear so far is that the figures are getting worse. No one can yet really say just how bad they will be. But of course this crisis will have an effect on growth,” Steinbrück said.

Natixis economist Costa Brunner said the retail sales data suggested that private consumption will help prevent the German economy from entering a “technical recession,” as defined by two successive quarters of economic contraction.

The German economy shrank by 0.2 percent in the second quarter, but figures for the third have not yet been released. For Solveen however, the retail figures “do not alter the fact that the German economy is probably heading for a recession.”