German retail sales rose unexpectedly by 0.4 per cent month-on-month in May, their third consecutive increase, in a sign lower inflation rates are encouraging consumers to spend despite the threat of job losses.
Year-on-year, sales fell by 2.9 per cent, the fifth month in a row that they have declined, figures from the Federal Statistics Office figures showed on Wednesday.
But the annual comparison was distorted somewhat because there was one sales day less in May 2009 than in the prior year.
"These are good figures," said Juergen Michels, an economist at Citigroup in London. "Consumption is looking quite robust in this recession. A clear fall in inflation is helping as it boosts purchasing power."
Economists surveyed by Reuters had forecast a 0.1 per cent drop in the seasonally-adjusted month-on-month figure and a 1.1 per cent drop on an annual basis.
Figures released last week showed consumer prices rose a meagre 0.1 per cent year-on-year in June after stagnating in May.
The slowdown in inflation and resilience in the labour market thanks to government short-term work subsidies to prevent mass layoffs has encouraged price-conscious Germans to spend, giving modest support to the economy at a time when manufacturers are struggling badly.
In the first quarter of 2009, gross domestic product in Europe's largest economy slid by 3.8 per cent. But that was largely attributable to a sharp decline in exports and capital investment. Private consumption was a positive contributor.
Still, with unemployment expected to pick up in the second half of the year, Ulrike Kastens, an economist at Sal. Oppenheim, said Germany was living on "borrowed time".
"The recession has not yet hit the labour market," she said. "Consumption will remain stable over the summer but by the autumn, many companies will have to decide whether they want to keep workers on short-time or lay them off."
Despite relative stability in retail sales so far, the downturn is already contributing to a shake-up in the sector.
Arcandor, one of Germany's biggest retailers, filed for insolvency last month after the government rejected successive requests for state aid.
Its rival Metro hopes to acquire about 60 of its Karstadt department stores and merge them with its own Kaufhof chain to create a new "German Department Store Inc.".
The Statistics Office said that in nominal terms, sales had risen by 0.5 per cent month-on-month and declined by 3.2 per cent on the year. In the first five months of 2009, sales were down by 2.3 per cent in real terms year-on-year.
The data were based on sales from seven states accounting for around 76 per cent of retail activity in Germany.
Reuters
