Retail sales post biggest drop since euro launch

German retail sales fell by 1.8 percent last year, final figures released Tuesday by the national statistics service showed, the biggest decline since euro notes and coins were introduced in 2002.

Retail sales post biggest drop since euro launch
Photo: DPA

While the figure was better than an earlier estimate of a 2.0 percent drop, it suggested that Europe’s biggest economy “will most likely have expanded only slightly” in the last three months of 2009, Commerzbank analyst Simon Junker said.

Consumption has nonetheless resisted better than expected as Germany’s economy suffered its worst post-war recession, with activity contracting by 5.0 percent overall last year.

Sales picked up by a provisional 0.8 percent in December compared with November, slightly below analyst forecasts for 0.9 percent compiled by Dow Jones Newswires.

“Apparently, German consumers did not let the financial crisis ruin their Christmas shopping,” ING senior economist Carsten Brzeski said.

“Still, private consumption seems to be caught in a zigzag pattern without getting to a real upward trend,” he noted.

German retailers faced a tough climate in 2009 as spending dwindled amid fears about growing unemployment.

The Arcandor group shut down its Quelle mail-order division and several Karstadt department stores, rival Hertie closed down and Woolworths also shut many German outlets.

Auto sales – which are not included in the retail data – were boosted by a state car scrapping premium that expired in September, and sales have dropped since then by 7.4 percent.

Higher unemployment this year is expected to curb a recovery in consumption, while tax breaks and possible salary increases could nonetheless provide households with some financial underpinnings.

The German retailers federation HDE forecast Tuesday that nominal sales would slip by 0.5 percent this year.

Particularly cold and wintry weather last month might has already caused many people to stay at home rather than head for the high street.

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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.