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German retail sales disappoint in February, consumer spending likely to be sluggish in Q1 2018

German consumer spending continues to be sluggish in the first quarter of 2018. In the second half of 2017, the euro area economy recorded softness in private consumption, which contracted in the third quarter and was merely flat in the final quarter of the year in spite of elevated consumer sentiment, solid jobs growth, and rising real disposable incomes.

Looking at today’s retail sales data, consumer spending in Germany continues to be sluggish. Retail sales dropped for the third consecutive month, falling 0.7 percent sequentially. With the earlier two months having recorded negative readings, the three-month rate indicated the first decline on this measure since May 2016, down to 0.4 percent three month-on-three month.

On a year-on-year basis, retail sales rose moderately by 1.3 percent, nearly one percentage point lower than the average annual rate last year. With the average level in January and February 0.6 percent lower than the fourth quarter average, retail sales are track to fall in the first quarter as a whole, noted Daiwa Capital Market Research.

Therefore, private consumption is expected to have grown at a considerably weaker rate than GDP as a whole. Moreover, with German households having responded to ultra-low interest rates by increasing the share of income saved, the contribution to GDP growth from private consumption is expected to remain disappointing in quarters ahead as well, added Daiwa Capital Market Research.

At 17:00 GMT the FxWirePro's Hourly Strength Index of Euro was neutral at -40.4396, while the FxWirePro's Hourly Strength Index of US Dollar was neutral at -34.7929. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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