German Retail Sales Unexpectedly Drop as Crisis Bites
German retail sales unexpectedly fell for a second month in May as the sovereign debt crisis worsened, damping the economic outlook.
Sales, adjusted for inflation and seasonal swings, dropped 0.3 percent from April, when they declined 0.2 percent, the Federal Statistics Office in Wiesbaden said today. Economists forecast a gain of 0.2 percent, the median of 13 estimates in a Bloomberg News survey shows. Sales dropped 1.1 percent from a year ago.
Unemployment at a two-decade low, falling energy costs and rising wages have bolstered consumer spending this year, helping to shield the German economy from Europe’s turmoil. With at least seven euro nations in recession and budget cuts across the region eroding demand for German exports, investors and executives are growing more pessimistic.
“Private consumption, supported by the robust labor market, is a stabilizing pillar for the German economy,” said Ulrike Rondorf, an economist at Commerzbank AG in Frankfurt. “At the same time, the crisis in the euro area and uncertainty about the economic outlook are slowing the positive dynamic in the labor market as employers reduce new hires.”
While Germany’s jobless rate held at 6.8 percent in June, the number of people out of work rose by 7,000, the Federal Labor Agency said yesterday.
Falling oil prices and rising wages may continue to encourage consumer spending.
Inflation slowed more than economists forecast to 2 percent this month as fuel costs declined. Volkswagen AG (VOW), Europe’s largest carmaker, agreed last month to a 4.3 percent pay raise for its employees in western Germany.
The Bundesbank this month raised its 2012 growth forecast to 1 percent from 0.6 percent, citing domestic consumption. Consumer confidence will increase in July, the GfK market research company predicted on June 26.
Still, business confidence dropped to the lowest in more than two years in June and investor sentiment plunged after data showed the debt crisis is taking its toll on exports, factory orders and industrial production.
Metro AG (MEO), Germany’s biggest retailer, in May stuck to a forecast that profit won’t increase this year amid concern that the economy will struggle to grow and consumers will limit spending. Metro shares are down about 19 percent this year.
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