German official retail sales mark four-year drop in May

FRANKFURT: German retail sales showed the sharpest drop for four years in May, provisional official data showed on Thursday, in the latest snapshot of Europe's biggest economy.

Fear generated by the outbreak of a killer strain of E. coli bacteria was a likely cause for the surprise drop, an analyst said.

Retail sales fell by 2.8 percent from the level in April, after a revised reading of no change for that month, the national statistics office said.

The figure for May represented the heaviest slump since a loss of 3.6 percent in May 2007, a Destatis spokesman said, just before the onset of the global financial crisis.

"The E.Coli (EHEC) outbreak is probably the largest single cause for the weakness in May. This can be inferred from food sales falling relatively to non-food," Berenberg Bank senior economist Christian Schulz said.

The figures were also an indication that the German economy is cooling following strong growth in 2010 and the first quarter of 2011.

Analysts polled by Dow Jones Newswires had forecast a monthly gain of 0.5 percent in May after an initial estimate by Destatis had suggested a gain of 0.6 percent in April.

The picture was somewhat brighter on an annual basis, with Destatis reporting a retail sales gain of 2.2 percent from May 2010, though that month had three fewer business days than this year.

Germany is counting on a pick-up in consumption to bolster the traditional economic boost provided by exports, but the Greek debt crisis has caused many households to look twice before splurging on non-essential items.

In the five months from January through May, retail sales were 1.5 percent higher than in the same period of 2010.

Schulz noted that the month-on-month figures "are frequently revised strongly and should be interpreted with caution."

On Tuesday, the GfK research institute said the mood among German consumers had improved, with its latest index of household sentiment rising to 5.7 points from 5.6 points in the previous survey.

And last week, the closely watched Ifo index, based on a survey of around 7,000 German firms across key sectors, suggested that business confidence had risen as well.

Early this month, the German central bank raised its growth forecast for this year to 3.1 percent, up from 2.5 percent previously.

For next year, the economy should grow by 1.8 percent, the Bundesbank added.

Schulz said that "with fundamentals and consumer confidence remaining firm in Germany, retail sales should rebound markedly in the months to come, if the Greek debt crisis can be contained and the global slowdown remains a soft patch."

Copyright AFP (Agence France-Presse), 2011