UPDATE 1-Despite December fall, German retail sales should support economy

BERLIN (Reuters) – German retail sales fell more than expected in December, data showed on Friday, suggesting that private consumption in Europe’s biggest economy had run out of steam in the final month of last year.

FILE PHOTO: Iron railings are seen in front of a jewelry shop at the famous shopping street Goethestrasse in Frankfurt, Germany, April 14, 2016. REUTERS/Kai Pfaffenbach/File Photo

Retail sales fell by 3.3% on the month in real terms after a downwardly revised rise of 1.6% the previous month, data from the Federal Statistics Office showed. This beat a Reuters forecast of analysts for a 0.5% drop.

Retail sales are a volatile indicator often subject to revision.

JP Morgan economist Greg Fuzesi said in an note that December retail sales data was regularly distorted, one reason being the popularity of giving gift vouchers at Christmas that are usually spent in January.

“There is no clear reason to expect any sudden weakness at this point as the labour market is holding up well and as consumer confidence remains elevated overall,” he said.

German consumer morale unexpectedly rose in January, the GfK market research group said on Wednesday, suggesting that a partial agreement reached in the U.S.-Sino trade conflict is putting German buyers at ease.

On the year, retail sales rose by 0.8% in December after a downwardly revised rise of 2.7% in November, the data showed.

The German economy has been relying on a consumption-driven cycle for growth as the export-oriented manufacturing sector contracts.

But weakening exports and layoff in the automotive sector are starting to leave their mark on the labour market. Jobless numbers rose by 8,000 in adjusted terms in December and fell by 2,000 in January.

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The government has rejected calls for a fiscal stimulus package to put the economy, which had the weakest expansion rate since 2013 last year, firmly back on a growth path.

It is hoping that tax cuts, investment and the low interest rate environment in the euro zone will boost consumption and keep the economy humming.

Lending support to this bet, the HDE retail association said on Friday that sales should rise by 2.5% this year, albeit at a slower pace than last year.

Additional reporting by Reinhard Becker; Writing by Joseph Nasr; Editing by Robert Birsel



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