German retail sales continue their decline

German retail sales have dropped again, down 1.4 per cent in July after a 0.8 per cent contraction last month (revised up from -1.5 per cent).

Economists had predicted an end to the decline and 0.5 per cent growth this month. Total retail sales growth in the year to July now stands at 2.3 per cent.

Christian Schulz, senior economist, Berenberg:

In the unlikely case that retail sales stayed unchanged in August and September, Q3 sales would be 1.6% lower than in Q2. Compared to a year ago, however, retail sales were 2.3% higher than in July 2013, which is probably more in line with underlying growth.

The temporary rise in food prices and the hot summer may have played a role. Nominal sales of food and drinks rose by 8.7% yoy and 5.0% in real terms, showing both the price effect and the volume effect of a hot summer month. In the monthly comparison, this may have squeezed out sales of other items such as books and jewellery, which were down 3.7% in real terms.

Retail sales are very volatile and often revised substantially later. This time was no exception with back data revised up, and the July data is very likely to get revised up, too. The data contradicts all indicators of consumer sentiment including for examples the GfK consumer confidence indicator which remains at 6-year highs. In conjunction with strong fundamentals such as low unemployment, healthy wage growth and low inflation, household spending should support German growth this year and via imports the rest of the Eurozone as well.