German Retail Sales to Shrink for Fourth Month, Outlook Remains Bleak

Published October 1st, 2009 - 03:15 GMT

German Retail Sales are expected to shrink for the fourth consecutive month, although the pace of contraction is set to moderate to -0.8% in the year to August from -1.0% recorded in the previous month. The unemployment rate unexpectedly fell to 8.2% yesterday, which would seem to bode well for the outlook on spending, but a look past the headline figure reveals a picture that is not as rosy as it appears. Excluding statistical changes made in the September report, the economy actually shed 10k jobs rather than gained 12k. This is a wild swing, which surely calls into question the reliability of the data in projecting the underlying state of the labor market. Further, the 0.7% gain in private consumption that helped propel economic growth in the second quarter owed almost entirely to 85 billion euro government stimulus plan that included a subsidy to keep employers from firing workers (which allegedly saved close to 500k jobs) and a credit for scrapping old cars for new ones. Some of these programs have already expired (the cars scheme) and others are set to expire soon, with additional stimulus unlikely considering Germany’s new ruling coalition has Angela Merkel’s CDU party sharing power with the free-market oriented FDP who have been very critical of her intervention into the economy last year while the fiscal deficit will top 5% for the first time in at least a decade in 2010. This means that while job prospects in Germany have been relatively better than in the broader Euro Zone, where the Unemployment Rate is set to rise to a fresh record high of 9.6% in August, the removal of public support threatens to push up job losses and weigh on spending, undermining a sustainable rebound in retail activity.

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