German Retail Sales Drop as Recession Damps Spending

By Jana Randow

Dec. 1 (Bloomberg) -- Retail sales in Germany, Europe’s largest economy, unexpectedly fell in October as the fallout from the global financial crisis damped household spending.

Sales, adjusted for inflation and seasonal swings, dropped 1.6 percent from September, when they declined a revised 1 percent, the Federal Statistics Office in Wiesbaden said today. Economists forecast a gain of 0.5 percent, the median of 34 estimates in a Bloomberg News survey showed.

The German economy fell into the worst recession in 12 years in the third quarter and sentiment in the retail industry dropped to the lowest level in more than three years. A Bloomberg survey of purchasing managers showed retail sales contracted for a sixth month. Still, Germany’s HDE retail federation has said there is no reason to give up on sales over the Christmas holiday period.

“It’s certainly a bigger drop than we had forecast,” said Simon Junker, an economist at Commerzbank Bank AG in Frankfurt, who had predicted a 0.5 percent decline. “At the same time, it’s not surprising; consumers have had nothing but bad news since September. I wouldn’t be overly hopeful for a pick-up in spending.”

From a year earlier, retail sales fell 1.5 percent, today’s report showed. The statistics office revised the September month- on-month figure from an initially reported 2.3 percent drop.

Bleak Outlook

The German economy contracted 0.5 percent in the third quarter. Bundesbank President Axel Weber predicted on Nov. 26 that the economy will probably shrink in the fourth quarter and remain in a recession next year. Business confidence deteriorated in November to the lowest level in more than 15 years, a survey by the European Commission showed.

“Despite the financial crisis, recession and bad tidings from other sectors, the retail industry has good reason not to give up on Christmas sales,” HDE President Josef Sanktjohanser said on Nov. 27.

German consumer confidence rose as slowing inflation left households with more to spend, market research firm GfK AG said Nov. 25.

The cost of oil has dropped 63 percent from a record $147 in July, damping price pressure. German inflation slowed to 1.5 percent in November from 2.5 percent, a first estimate by the Federal Statistics Office showed last week. That is the biggest decline in the annual rate since at least 1996.

“It seems the retail industry is sweet-talking the situation,” said Philipp Jaeger, an economist at DZ Bank AG in Frankfurt. “Consumers should have noticed by now in which direction the economy is developing, and unemployment will begin to creep up in the next month or two.”

To contact the reporter on this story: Jana Randow in Frankfurt at jrandow@bloomberg.net