German July Retail Sales Fall as Energy Prices Jump

By Christian Vits

Sept. 1 (Bloomberg) -- Retail sales in Germany, Europe's largest economy, fell a second month in July as rising prices and a shrinking economy discouraged household spending.

Sales, adjusted for inflation and seasonal swings, dropped 1.5 percent from June, when they slid 1.4 percent, the Federal Statistics Office in Wiesbaden said today. Economists forecast a decline of 0.3 percent, the median of 32 estimates in a Bloomberg News survey shows. In the year, sales remained unchanged.

Oil hit a record $147.27 in July and food prices kept inflation in Germany close to a 12-year high this month, squeezing disposable incomes. For the first time in almost four years, the economy shrank in the second quarter, damping consumer confidence.

``Consumer spending will likely remain weak over the coming quarters,'' said Ralph Solveen, an economist at Commerzbank AG in Frankfurt in an e-mailed note. ``From this side, there won't be any renewed boost for the German economy in 2009.''

While oil prices have fallen from their peak, they're still up 60 percent over the past year. German inflation in August eased 0.2 percentage point to 3.3 percent from a 12-year high in the previous month.

Growth Concerns

German consumer confidence for September fell to the lowest since June 2003 as the economic outlook deteriorated. The Bloomberg purchasing managers' index showed retail sales contracted at the fastest pace in eight months in August.

In the first seven months of the year, retail sales fell 0.5 percent from a year earlier, today's report showed.

The economy contracted 0.5 percent in the three months through June, led by a slump in investment and consumer spending. The government forecasts growth will slow to 1.7 percent this year and 1.2 percent in 2009 from 2.5 percent in 2007.

The economy is ``exposed to a serious economic stress test,'' Economy Minister Michael Glos said last week. Private consumption ``is the economy's Achilles' heel'' in withstanding this test.

Still, unemployment fell more than economists expected in August, pushing the jobless rate to the lowest level in 16 years. That may help sales in supermarkets and departments stores.

Investor confidence increased more in August than economists forecast after the euro declined and oil prices retreated.

In July, retail sales of clothing and shoes rose 4.1 percent from a year earlier, today's report showed. Sales of household supplies and furniture increased 1 percent and consumers increased spending on books and jewelry by 6 percent.

To contact the reporter on this story: Christian Vits in Frankfurt at cvits@bloomberg.net