German retail sales suffer biggest fall in seven years

German retail sales posted their biggest monthly decline in more than seven years in September, a sign that consumers cannot be relied on to prop up Europe’s largest economy.

Data from the country’s Federal Statistics Office showed retail sales, which are notoriously volatile and tend to be extensively revised, dropped by 3.2% in real terms compared with August — their biggest drop since May 2007.

“A drop had been expected after the strong August, but not this kind of dramatic fall. It’s bad because it makes a recession in Germany more likely,” said Holger Sandte, an economist at Nordea Bank.

The German economy had a strong start to 2014 but contracted in the second quarter. Fears about a recession are now rife, partly due to a faltering eurozone and depressed investment climate caused by political crises abroad.

The disappointing retail sales figures come after a slew of discouraging data, which have shown industry orders, output, and exports all plunging at their steepest rate since the height of the financial crisis in 2009.

“Pressure on the ECB is growing as things are not going well even in Europe’s largest economy,” Sandte said.

The government is banking on domestic demand to boost growth this year, while exports are expected to be weak. Record high employment, rising wages, moderate inflation, and low interest rates should help to boost consumer sentiment.

From January to September, retail sales rose 1.3% in real terms compared with the same period last year.

Reuters