Tuesday, July 01, 2008

Have German Retail Sales Now Past Their Peak (permanently)?

According to the latest provisional results from the Federal Statistical Office retail sales in Germany in May 2008 were up 3.5% in nominal terms 3.5% and in 0.7% real terms over May 2007. The number of days open for sale was identical in both years.

When adjusted for calendar and seasonal variations, sales turnover was up 1.7% in nominal terms and 1.3% in real terms over April 2008. That is quite a significant increase m-o-m.

Compared with the corresponding period of the previous year, retail turnover was up 2.2 % in nominal terms and down 0.4% in real terms in the first five months of 2008. German sales also fell markedly again in June, reversing from the sharp rise posted in May according to the Bloomberg retail PMI reading. The index slumped from the eighteen-month high of 56.6 achieved in May to 44.9. (The PMI measures the rate of expansion or contraction. As we have seen retail sales expanded rapidly - 1.3% in real terms over April - and now we seem to have an equally rapid rate of contraction going into June).

The monthly index really shows a before and after picture, with the sharp spike in December 2006 being followed by a huge trough in January 2007 following the 3% VAT hike. After that retail sales have never really recovered, suggesting that raising consumer takes in the way may not be as harmless as many thought, and it is certainly not the most advisable way to finance population ageing.

If we now look at the annual index, it seems to be the case that sales peaked in 2006, and since Germany's population is now falling, it would seem to be more than just idle speculation to ask whether German retail sales will ever rise again on an annual basis.

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