German retail sales slump signals weak start to Q3

German retail sales fell by far more than expected in July after two months of sharp increases, data showed on Wednesday, in a first sign that a consumer-driven recovery in Europe's largest economy might be losing steam in the third quarter.

The Federal Statistics Office said retail sales dropped 5.1 per cent on the month in real terms after a revised jump of 4.5 per cent in June and an increase of 4.6 per cent in May. The July reading missed a Reuters forecast for a fall of 0.9 per cent.

The monthly comparison was distorted heavily by the lifting of Covid-19 restrictions on shopping in most parts of the country in June, the statistics office said.

Retail sales - a volatile indicator often subject to revisions - edged down by 0.3 per cent in real terms year on year, it added. Compared with February 2020, the month before the coronavirus crisis hit Germany, retail sales were up 3.8 per cent.

The German economy returned to growth in the second quarter but bounced back less strongly than other euro zone countries as supply chain bottlenecks slowed industrial output.

Supply problems with raw materials and intermediate goods, coupled with rising Covid-19 cases because of the more contagious Delta variant, are driving companies to take a dimmer view of the coming months.

Bankhaus Lampe analyst Alexander Krueger believes that retail sales are likely to recover in the comings months.

, with the labour market strong and more companies scaling back short-time work schemes introduced during the pandemic.

However, overall support for the economy from household spending could be less strong in the third quarter than many had hoped for, he added.