German retail sales fell at the biggest annual rate since records began in 1994, underscoring the scale of the economic challenges facing the eurozone’s biggest economy.
Retail sales volumes fell 8.8 percent in June compared with the same month last year, data from Destatis, Germany’s national statistics office, showed on Monday.
Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, said the figures were “miserable” and mainly due to the impact of rising prices on consumer spending. Inflation in Germany is at a multi-decade high of 8.5%.
The drop in retail sales follows Friday’s news that German economic growth stagnated between the first and second quarters, and figures showing business and consumer confidence are now at their lowest since early months of the pandemic.
While the eurozone economy as a whole grew by 0.7% between the first and second quarters, analysts increasingly expect the region to enter a recession in the coming months due to the impact of Russia’s large-scale invasion of Ukraine in energy markets and confidence.
Chris Williamson, chief economist at S&P Global Market Intelligence, said manufacturing activity in Germany and elsewhere was “sinking into an increasingly steep decline, adding to recession risks in the region.”
Closely watched purchasing managers’ indexes for eurozone manufacturing, also released on Monday, showed that factory activity was now slipping across the eurozone.
S&P’s global PMI for German manufacturing fell below the crucial 50 level, which separates an expansion in activity from a contraction, for the first time in two years.
Across the region, new orders fell, a sign that conditions are likely to remain tough in the coming months. The biggest risk facing the region is that tensions with Moscow worsen, causing Russia to reduce or stop gas flows to the EU. Economists believe this would trigger a major recession across the bloc.
Although German retail sales volumes fell significantly, consumers reduced their overall spending by a much smaller amount, an annual drop of just 0.8 percent, due to the impact of inflation on purchasing power.
Monday’s figures disappointed investors, with the 1.6 percent drop in sales volumes between May and June much worse than the 0.2 percent expansion expected by economists polled by Reuters.
The drop in retail spending also reflects a shift from spending to services, not included in retail sales, following the boom in demand for goods that occurred in 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 on Monday, showed that in June the number of unemployed in the eurozone rose for the first time in 14 months.
While the region’s labor market remains a relatively bright spot, with the unemployment rate unchanged at an all-time low of 6.6 percent, the absolute number of people looking for work rose by 25,000 to almost 11 million.
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