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German retail sales drop as crisis hits consumers

Simon Morgan
People walk past a sales advertisement in a shop window on January 3, 2013 in Essen, western Germany. Retail sales in Germany fell unexpectedly in December, wiping out the modest rise seen the previous month, official data showed on Thursday

Retail sales in Germany fell unexpectedly in December, as consumer spending took a hit from the eurozone's debt crisis, official data showed on Thursday.

Retail sales declined by 1.7 percent in December compared with November, in price, seasonally and calendar-adjusted terms, according to provisional figures published by the federal statistics office Destatis.

Analysts surveyed by Dow Jones Newswires had expected a modest increase of 0.2 percent following a rise of 0.6 percent in November.

On a 12-month basis, retail sales were down even more sharply by 4.7 percent in December. But that was because there were two fewer shopping days in December in 2012 than in 2011, the statisticians said.

Taking 2012 as a whole, retail sales slipped by 0.3 percent, Destatis calculated.

Monthly retail sales data are volatile and subject to frequent revision, but analysts said the data were nevertheless disappointing.

"On an annual basis, this was the largest drop in over three years in December," said Natixis economist Constantin Wirschke.

"Looking at retail sales on a quarterly basis, private consumption could have possibly shrunk in the fourth quarter," he suggested.

Even taking into account that the data are volatile and prone to frequent revisions, "the hope that private consumption will be a second pillar of Germany's growth has been somewhat dented after very slow growth in private consumption throughout 2012, despite a rise in real wages," Wirschke said.

Berenberg Bank economist Christian Schulz said that the rebound in a wide range of confidence indicators "is failing to reach the real economy so far.

"Despite low unemployment and rising wages, German consumers kept their purses firmly shut even in the Christmas period," he said.

Even a sizeable revision in the data "would probably signal that retail sales were contracting somewhat in fourth quarter and may thus have contributed to the weak gross domestic product performance," he said.

But Schulz insisted: "The fundamentals for German private consumption remain favourable. Unemployment remains low, employment at record highs. Wages increased by 2.7 percent in 2012, more than in 2011 and 2010 and prices remained broadly stable."

If the euro crisis remained under control, a resumption in growth "should boost household confidence and ultimately help them to spend again," he said.

Annalisa Piazza at Newedge Strategy agreed.

"Consumer confidence has already improved a touch at the start of the year. As such, the moderation in retail activity is likely to be temporary and a slight improvement might materialise already in the second quarter of this year," she said.

Wirschke at Natixis also said he was "more optimistic with regards to retail sales figures and private consumption in general in the first quarter of 2013."

Earlier this week, the GfK institute found in its regular monthly index that consumer confidence in Germany has risen for the first time in three months amid burgeoning optimism that Europe's biggest economy has put the worst of the debt crisis behind it.