February 7, 2023

German retail sales fell at the fastest annual rate since records began in 1994, demonstrating the magnitude of the economic challenges facing the eurozone’s largest economy.

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

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

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

While the eurozone economy as a whole grew by 0.7 percent between the first and second quarters, analysts increasingly expect the region to spiral into a downward spiral in the coming months due to the impact of the Russian invasion of Ukraine on Ukraine. energy markets and confidence.

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

Line chart of annual % change on volume index showing German retail sales declined the most

The closely watched euro-zone manufacturing purchasing managers’ indices, also released Monday, showed that manufacturing activity was now slipping across the euro-zone.

The S&P Global PMI for the German manufacturing sector fell below the crucial 50 level for the first time in two years, separating activity growth from contraction.

New orders fell across the region – a sign that conditions are likely to remain difficult in the coming months. The biggest risk to the region is that tensions with Moscow will worsen, forcing Russia to reduce or stop gas flows to the EU. Economists believe this would trigger a major recession across the bloc.

Purchasing Managers Index Line Chart, below 50 = Majority of Companies Reporting a Contraction, showing that manufacturing activity in the Eurozone is in a contracting state

While German retail volumes fell dramatically, consumers cut their overall spending by a much smaller amount, a yearly decline of just 0.8 percent, reflecting the impact of inflation on purchasing power.

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Monday’s numbers disappointed investors, with the 1.6 percent decline in sales volumes between May and June being much worse than the 0.2 percent growth forecast by economists by Reuters.

The decline in retail spending also reflects a shift in spending towards services – not including retail – following the massive demand for goods that took place during the early 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 of last week’s German gross domestic product figure, which was a flash estimate and is often subject to change.

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

While the labor market in the region remains a relatively bright spot and unemployment remains unchanged at a record low of 6.6 percent, the absolute number of job seekers rose by 25,000 to nearly 11 million.