German retail sales post surprise plunge in December amid rising prices

Updated: Jan 31, 2023, 10:51 UTC

BERLIN (Reuters) - German retail sales unexpectedly fell in December, decreasing by 5.3% compared with the previous month, data showed on Tuesday.

Christmas shopping in Berlin

By Maria Martinez and Rachel More

BERLIN (Reuters) -German retail sales unexpectedly fell in December as a Christmas shopping period weighed down by high inflation and the energy crisis revived fears of a more marked slowdown in Europe’s largest economy.

Retail sales decreased by 5.3% in December compared with the previous month, the federal statistics office said on Tuesday. Analysts polled by Reuters had forecast a 0.2% rise in price-adjusted terms.

“The sharp drop in retail sales showed that even the solid labour market cannot prevent high inflation and uncertainty from denting private consumption,” said Carsten Brzeski, global head of macro at ING.

Retail sales also fell in December by 6.4% in real terms compared with a year earlier, the statistics office said.

“Just before Christmas, retailers in German city centres missed the big rush,” said VP Bank chief economist Thomas Gitzel.

A one-off payment disbursed to households in December as part of government relief measures to tackle soaring energy bills helped slow harmonised inflation that month to 9.6%, but apparently it did little to spur consumer spending.

“The much-cited loss of prosperity is also reflected in weaker consumption, among other things. As there is little change in this core dynamic for the time being, private consumption will continue to be weak,” Gitzel said, adding this would further weigh on economic output this quarter.

According to the annual provisional results, retail sales rose 7.8% in nominal terms from a year ago. But when adjusted for inflation, they fell 0.6%, the statistics office reported.

“The downbeat consumer mood had heralded the crash in consumption,” said Alexander Krueger, chief economist at Hauck Aufhaeuser Lampe Privatbank. “The decline is extremely severe, and high inflation has become a consumption killer.”

Germany’s HDE retail association expects nominal revenue growth of 2%, but in real terms it expects a 3% decline in 2023.

“The retail sector is holding up well in 2023 despite the difficult conditions, but it is losing ground slightly,” said HDE President Alexander von Preen in Tuesday’s presentation of the forecasts.

According to an HDE survey, half of retail companies it surveyed consider their current situation satisfactory, while one quarter of them think it is poor.

Meanwhile, fewer German companies were planning price rises in the next three months, the Ifo economic institute said based on its latest survey, but price expectations in consumer-related businesses remained high and were declining at a slower pace.

(Reporting by Friederike Heine, Rachel More and Rene Wagner; Writing by Maria Martinez; Editing by Miranda Murray and Arun Koyyur)

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