German retail sales fall at fastest pace on record

German retail sales have fallen at the steepest annual rate since records began in 1994, underscoring the scale of the economic challenges facing the eurozone’s largest economy.

Retail sales volumes fell 8.8% in June from the same month last year, data from Destatis, Germany’s national statistics office, showed on Monday.

Claus Vistesen, chief euro zone economist at Pantheon Macroeconomics, said the numbers were “miserable” and mainly due to the impact of soaring prices on consumer spending. Inflation in Germany is at a multi-decade high of 8.5%.

The drop in retail sales follows news on Friday that German economic growth stagnated between the first and second quarters, and figures showing that business and consumer confidence is now at its lowest level since the first months of the pandemic.

As the eurozone economy as a whole grew by 0.7% between the first and second quarters, analysts increasingly expect the region to enter a slowdown in the coming months. , the impact of the Russian invasion of Ukraine on energy markets and biting confidence.

Chris Williamson, chief economist at S&P Global Market Intelligence, said manufacturing activity in Germany and elsewhere was “sliding into an increasingly steep slowdown, adding to the region’s downside risks”.

The closely watched purchasing managers’ indices for eurozone manufacturing, also released on Monday, showed factory activity was now slipping in the eurozone.

The S&P Global PMI for German manufacturing fell below the crucial 50 level, which separates an expansion in activity from a contraction, for the first time in two years.

Across the region, new orders fell, a sign that conditions are likely to remain challenging in the months ahead. The biggest risk facing the region is that tensions with Moscow escalate, pushing Russia to reduce – or stop – gas flows to the EU. Economists believe this would trigger a major recession across the bloc.

Line chart of the Purchasing Managers Index, below 50 = a majority of companies reporting contraction showing Eurozone manufacturing activity slipping into contraction

While retail sales volumes in Germany fell dramatically, consumers reduced their overall spending by a much smaller amount, an annual decline of just 0.8%, due to the impact of the inflation on purchasing power.

Monday’s figures disappointed investors, with the 1.6% drop in sales volume between May and June far worse than the 0.2% expansion predicted by economists polled by Reuters.

The drop in retail spending also reflects a return of spending to services – not included in retail sales – after the boom in demand for goods that occurred during the first quarters of the coronavirus pandemic, when restaurants , bars and entertainment venues were often closed.

Vistesen noted that the drop in retail sales could lead to a downward revision to last week’s figure for German gross domestic product, which was a quick estimate and is often subject to change.

Data from Eurostat, the European Commission’s statistics office, also released on Monday, showed that in June the number of unemployed rose in the eurozone for the first time in 14 months.

While the region’s labor market remains relatively bright and the unemployment rate remained unchanged at a record high of 6.6%, the absolute number of job seekers increased by 25,000 to reach nearly 11 million.

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