German retail sales stagnate

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The German consumer showed no sign of springing into life last month, despite the strong growth in Europe’s largest economy, official figures showed on Friday.

Retail sales in German were unchanged in August after a revised 0.8 per cent fall in the previous month, according to the Federal Statistics Office.

Sluggish consumer spending has long been the Achilles’ heel of Germany’s economy, dragging down the eurozone’s overall performance. But the latest figures surprised analysts who had expected a rise on the back of one of the strongest German growth performances for years in the first six months of 2006, powered by the country’s industrial sector.

They contrasted sharply with the picture in France, where consumers’ spending on manufactured goods leapt 3.3 per cent in August, according to figures released last week.

The poor summer weather in August, after an exceptionally hot July, had been expected to encourage more people into the shops. Germans were also expected to step up purchases to beat a three percentage point rise in VAT next January.

But economists stuck to the view that this year would bring some overall improvement. With energy prices falling and the VAT hike looming, “strong retail sales can be expected over the final months of this year, before January brings a serious slump,” said Ralph Solveen, economist at Commerzbank.

The German retail sales figures were among a raft of eurozone data released on Friday.

Eurozone inflation dropped more-than-expected in September to 1.8 per cent, showing the headline rate falling back within the European Central Bank’s target of “below but close” to 2 per cent for the first time since January 2005.

Howard Archer, Global Insight economist, said: “The marked falling back in eurozone consumer price inflation in September will not deter the European Central Bank from raising its key interest rate further. Significantly the latest comments from ECB officials remain hawkish, as they continue to stress that medium-term inflation risks persist and that the strength of the eurozone economy warrants a withdrawal of monetary accommodation”.

Other data showed business and consumer sentiment rose to 109.3, a five year high. Holger Schmieding of Bank of America, said the data were surprisingly good, especially the rise in business climate and the industrial confidence was very encouraging: “It does suggest that the eurozone’s economy will continue to expand at an above-trend pace at least until the end of this year. At the same time we see there is no inflation outside energy”.

Separately, France reported an unexpected rise in unemployment in August. The jobless rate rose to 9.0 per cent in August from 8.9 per cent in July.

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