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ECONOMY

Retail sales resist dire downturn in 2009

German retail sales fell by around 2.0 percent in 2009 from the previous year, an official estimation said Thursday as consumption fared better than Europe's biggest economy in general.

Retail sales resist dire downturn in 2009
Photo: DPA

“Private consumption has been an important cushion of the recession,” ING senior economist Carsten Brzeski commented, though he noted that retail sales figures were often revised later.

Economists warned that consumption began to slump heavily in the second half of the year and that Germany could soon find itself in a consumer recession.

The federal statistics office’s provisional figure is based on data from the first 11 months of the year.

At constant prices however, the drop was expected to be between 2.5 and 2.7 percent, the Federal Statistics Office (Destatis) said.

That is nonetheless better than a contraction of around five percent forecast for the overall economy last year, its worst slump since World War II.

A key factor supporting consumption was the less-than-expected rise in unemployment, in large part the result of government subsidised short-work schemes, from which around one million workers benefit at present.

The retail sector federation HDE and many economists are prudent regarding 2010 meanwhile, because unemployment is expected to climb despite a pickup in exports and industrial output.

In November, retail sales lost a steep 1.1 percent from their level the previous month, according to seasonally adjusted figures released by Destatis.

Brzeski termed the November figure “a setback.”

UniCredit counterpart Alexander Koch said the fourth quarter of last year would show a decline and added: “A consumer recession in the second half of 2009 is in the cards.

“The early Christmas shopping period didn’t bring a boost to retail sales – quite the contrary,” he noted.

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ECONOMY

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.

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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.

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