German retail sales jump

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.

German retail sales jump
Photo: DPA

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.”


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.