German retail sales plunged by nearly 10 percent in January, the sharpest monthly fall since reunification in 1990, as a hike in value-added tax (VAT) hit spending despite aggressive discounting and mild weather. Economists said they still expected Europe's largest economy, which grew at its fastest pace in six years in 2006, to rebound in the coming months.
A steady improvement in the labour market over the past two years, punctuated this week by a sharp fall in February jobless totals, should encourage German consumers to open their wallets. But the retail sales numbers, which were far weaker than analysts had forecast, suggested the government's three percentage point VAT hike may have had a more significant impact on growth at the start of 2007 than some experts had predicted.
According to preliminary data from the Bundesbank on Friday, German retail sales including vehicles and gas stations plunged 9.7 percent in January in real and seasonally adjusted terms, the biggest fall since it began measuring retail sales for a reunified Germany at the start of 1991.
Compared with a year earlier, sales fell 4.8 percent, the central bank said on its Web site. In December, sales rose 4.4 percent on the month and 7.1 percent on the year as consumers flocked to the shops to beat the VAT hike.
A separate measure from the Federal Statistics Office, which excludes vehicle and petrol station sales, showed a 5.1 percent month-on-month decline in January, the largest drop since April 1999, and a 1.4 percent dip from a year earlier.
The drops exceeded Reuters consensus forecasts for monthly and annual declines of 1.4 and 0.8 percent, respectively. The Statistics Office data is based on figures from six German states accounting for some 67 percent of total sales.
The government raised VAT to shore up federal finances and cut mandatory social security payments by workers and employers. Data at the start of the year suggested Europe's largest economy, which grew at a robust 2.7 percent last year, was weathering the hike.
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