German retail sales continue to slide

German retail sales fell unexpectedly in December, seasonally corrected data released Tuesday by the national statistics office showed as the biggest European economy remained gripped by recession.

German retail sales continue to slide
Photo: DPA

On a monthly basis, German retail sales lost 0.2 percent, their third drop running and well below an analysts’ forecasts compiled by Dow Jones Newswires that had pointed to an increase of 0.5 percent. On a 12-month basis, retail sales lost 0.3 percent in December, the Destatis statistics service said.

And for all of 2008, they were 0.4 percent lower than in 2007, when they had plunged by 2.3 percent owing to an increase in the country’s value added tax.

On Monday, the German GfK research institute said consumer spending should resist the effects of rising unemployment this year but warned that the global economic slump would affect consumption in 2010.

“Experts generally anticipate that the crisis will not impact decisively on the labour market and consequently consumption until 2010,” a GfK statement said.

Destatis noted Tuesday that retail sales figures, which are based on data from seven German states that account for about 76 percent of all sales, are often revised and corrected its November result upwards, though it remained in negative territory at minus 0.1 percent.

The numbers do not include sales of automobiles or sales at petrol stations. Consumption is the weakest link in Germany’s export-oriented economy, and officials regularly seek to boost consumer spending, especially since exports have been curbed by slowdowns or recessions in major global economies.

The German Economy Ministry has said that economic activity might contract by up to 3.0 percent this year, and the country is already in recession after the economy shrank in the last three quarters of 2008.

Last week, the German labour office said unemployment had jumped by 387,000 to just under 3.5 million people in January. Those figures showed that 8.3 percent of the German workforce was out of work in January, up from 7.4 percent in December.

“Mr. Average Citizen is fully aware of the fact that the brutal recession equals rising unemployment and less job security,” noted UniCredit Group analyst Andreas Rees.

He forecast that another 500,000 jobs would be lost in Germany this year, while Commerzbank counterpart Simon Junker put the figure at 700,000. “It is unlikely – not to say illusionary – that consumer expenditure will transform itself into a growth engine,” Rees concluded.


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.