Unexpectedly poor German retail sales and unemployment data on Tuesday set back hopes that Europe’s largest economy is making a comeback and took some of the shine off the eurozone’s economic outlook.
The 1.4 per cent fall in December’s retail sales and rise in the unadjusted joblessness total to above 5m last month heightened fears that German growth weakened significantly after strong growth in the third quarter of last year. They came despite a European Commission survey showing economic sentiment in Germany and across the eurozone had reached levels of optimism not seen since the first half of 2001.
The figures will encourage the European Central Bank to take a cautious stance at its rate-setting meeting tomorrow as it plans the next rise in borrowing costs, possibly in March.
Economic activity in the eurozone, which has seen years of sluggish growth, picked up in the second half of last year, brightening the outlook for the 12-country region. In Germany, industrial confidence has soared, lifted by strong exports and a new optimism in boardrooms after years of cost-cutting and restructuring.
Joaquin Almunia, European Union monetary affairs commissioner, will this month upgrade his 1.9 per cent eurozone growth projection for 2006, following a decision to make official forecasts four times a year in future, rather than just publishing in spring and sutumn. Although Mr Almunia has said growth is unlikely to reach 2.5 per cent this year, Commission forecasting models predict it will comfortably surpass 2 per cent.
Hopes of a sustained eurozone recovery have assumed German consumer spending would eventually recover after four years of declines or weak growth. Sentiment surveys pointed to a recent improvement. But Tuesday’s data for the Christmas month suggested consumer spending fell in the last three months of 2005 – for the fourth successive quarter. Retail sales in December were 1.6 per cent lower than in December 2004.
The rise in unadjusted unemployment above the symbolic 5m figure for the first time since March last year will weigh on consumer sentiment. On a seasonally adjusted basis, the number of jobseekers rose by 69,000 this month, taking the unemployment rate to 11.3 per cent. “I would be more confident in the rebound if jobs were being created faster,” said Dirk Schumacher, economist at Goldman Sachs.
Franz Müntefering, labour minister, said the labour market figures were “an incentive to proceed with our growth-boosting measures, social security and labour market reforms”.
Doubts were raised about the accuracy of Tuesday’s data and retail sales might have rebounded in January as Germans took advantage of special offers. But the figures were consistent with the long running trend whereby robust exports and rising corporate investment have stubbornly refused to translate into jobs and stronger consumer demand.
HDE, the retailers’ federation, said the federal statistical office’s retail sales figures contradicted anecdotal evidence of brisk business by its members in December.
The Nuremberg-based Federal Labour Agency said the distorting effects of a change in the date of labour market data collection and cold weather since Christmas, meant the underlying trend of a gradual labour market improvement remained intact.
Economists also took comfort from a European Commission survey showing overall eurozone economic sentiment at the highest level since June 2001, with an improvement in Germany offsetting falls in Spain and a stable picture in France.
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