German retail sales disappoint in December

today Jan 31, 2014
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FRANKFURT, Germany - German retailers reported a shock drop in business in December, suggesting a disappointing Christmas period, official data showed on Friday, but the sector is projecting a pick-up this year.

Retail sales, a closely watched measure of household confidence, dropped by 2.5 percent in December compared with November, the federal statistics office Destatis said in a statement.

That meant that taking 2013 as a whole, retail sales edged up by a meagre 0.1 percent over the entire year, Destatis calculated.

The monthly data - which are notoriously volatile and subject to frequent revision - appeared to fly in the face of the latest consumer confidence indices which rose strongly both in December and in January.

The retail industry federation HDE calculated that sector-wide sales increased by 1.1 percent in the whole of 2013 and growth was set to pick up to 1.5 percent this year, driven primarily strong increases in food sales and e-commerce.

"Rarely were the overall conditions for consumption in Germany so favourable," said HDE chief Stefan Genth.

"However, retailers are not benefitting because rising electricity prices are weighing on consumers' purchasing power," Genth said.

The new coalition government's planned shake-up of pensions and the introduction of a minimum wage also represented risks, he added.

In food retail, strong growth was expected because "many customers are prepared to pay more for quality and service. Demand for bio- and fair-trade goods is on the rise," Genth said.

Retailers of watches and jewellery, books and toys were set to see their business hit.

Online retailers, on the other hand, were set to see a sharp 17-percent rise in business this year, HDE predicted.

Analysts similarly seemed sceptical about the monthly December retail sales data.

"The sharp drop contradicts all other evidence on the German consumer so much that it may get revised significantly," said Berenberg Bank economist Christian Schulz.

"Consumer confidence have reached new record levels, wages keep rising, unemployment is falling and inflation very low thanks to stable energy prices. This is a strong cocktail of fundamentals that should boost household spending in 2014," the expert said.

According to the Destatis data, retail sales fell sharply across almost all categories in December on a 12-month basis.

Some downside risks

Sales of furniture and DIY goods, which had been one of the stronger categories in recent years as Germany's housing market picked up a bit, were the worst performer.

Pharmacy sales were the only positive exception.

Schulz said the retail sales data "are not a good indicator of consumption in gross domestic product (GDP), which probably rose by 1.0 percent over the year.

"Consumers seem to be spending their money elsewhere than in those shops reporting in the statistical offices survey. Car sales, which had been picking up but do not enter the retail sales data, may play a role, too," he added.

Natixis economist Johannes Gareis was more cautious, saying the drop in retail sales "should further weigh on private consumption, which has been losing momentum over the course of last year."

However, "for the first quarter of 2014, we stay optimistic and expect private consumption to continue to play the most prominent role in Germany's economy. This scenario is backed by rising consumer confidence, high employment, lower price inflation, and low interest rates," Gareis said.

Annalisa Piazza at Newedge Strategy said: "We wouldn't read too much out of one-month data. That said, the picture for fourth-quarter retail activity is certainly not too strong.

"We rule out that today's data are the harbinger of a period of falling personal consumption but we need to consider some downside risks to GDP growth," Piazza said.

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