Jobless drop, Retail sales fall paint mixed picture of Germany
BERLIN: Germany’s jobless rate fell to a new record low in September and the number of unemployed people fell far more than expected but retail sales disappointed, sending mixed signals about the state of Europe’s largest economy.
The unemployment rate dropped to 5.6 per cent, the lowest level since reunification in 1990, after 5.7 per cent in August, data on Friday from the Federal Labour Office showed. Economists polled by Reuters had expected it to hold steady.
The jobless total fell by 23,000 to 2.506 million in seasonally adjusted terms. That compared with the consensus forecast in a Reuters poll for a fall of 5,000 and was a steeper drop than that projected by even the most optimistic economist, who had expected a fall of 15,000.
“The economic cycle in Germany is moving towards its peak stage and that’s giving the labour market a further boost,” said Joerg Zeuner, chief economist at state development bank KFW.
An economic upturn in Europe has boosted exports and corporate investment, suggesting further rises in employment and noticeable wage rises - including beyond 2017, he said. But he added there were risks for the economy, with a further strong appreciation of the euro chief among them.
That could potentially hurt exporters in an economy traditionally propelled by exports but more recently driven by consumers who are benefiting from record employment, increased job security, rising real wages and ultra-low borrowing costs.
Other data published on Friday showed retail sales unexpectedly fell on the month in August and posted a smaller increase on the year than forecast, putting a slight dampener on hopes that a consumer-led upswing will continue at full steam.
The volatile indicator, which is often subject to revision, showed retail sales decreased by 0.4 per cent on the month in real terms. That compared with the Reuters consensus forecast for a 0.5 per cent rise and followed a 1.2 per cent drop in July.
On the year, retail sales jumped by 2.8 per cent, matching the previous month’s increase but undershooting a Reuters consensus forecast for an increase of 3.2 per cent.
Adding to the mixed picture, a GFK survey published on Thursday showed the cheerful mood among German shoppers had clouded unexpectedly heading into October.
Nonetheless, the outlook for the economy remains bright overall. Institutes on Thursday hiked their growth forecasts to 1.9 per cent this year and 2 per cent next year, while also saying Germany would have record budget surpluses over the next two years.
German and Spanish consumer prices rose less than expected in September, tilting a finely balanced monetary policy debate at the European Central Bank towards a more measured exit from its stimulus programme.
Prices in Europe’s largest economy rose 1.8 per cent year on year, Eu-harmonised data showed on Thursday - less than the 1.9 per cent rise forecast in a Reuters poll. In Spain, equivalent prices rose 1.9 per cent, below the expected 2 per cent.
Hawks at the ECB want the central bank, whose main policy target is an inflation rate of just under 2 per cent, to scale back its asset purchases relatively quickly while doves favour a gradual withdrawal.
It is expected to decide this autumn - most probably in October - whether to curb its stimulus from next year.
“The figures allow the ECB to exit its expansionary monetary policy slowly,” said Marco Bargel of Commerzbank. “The inflation we are currently seeing in Germany and in the euro zone lends no reason to wait longer to wind down the bond purchases but at the same time there is no reason to rush.”
German inflation has consistently run above the euro zone average. Preliminary data for the whole bloc is due on Friday and should show a rise to 1.6 per cent from 1.5 per cent in August, according to a Reuters poll.
The German economy grew by 0.7 per cent on the quarter between January and March and by 0.6 per cent in the second quarter, driven by household and state spending as consumers and authorities reap the benefits of record-low borrowing costs and a low unemployment rate.
Despite a robust growth outlook, leading economic institutes expect German inflation to remain below 2 per cent in the next two years.
A breakdown of Thursday’s data showed non-harmonised food and energy inflation picked up from August while services and rents were unchanged.
Economists say the weakerthan-expected German figures back expectations that relatively subdued price pressures will support a consumption-led upswing.
Sal Oppenheim economist Ulrike Kastens said she expected German wages to grow by up to 3 per cent on average next year while she saw inflation remaining unchanged at roughly 1.7 per cent.
“This means that workers still have more money in their pockets to spend,” Kastens said. “Private consumption will remain a growth driver also next year.”
Still, a consumer sentiment survey showed on Thursday that the cheerful mood among German shoppers weakened heading into October. The Nuremberg-based GFK institute said its index edged down to 10.8 points from 10.9 in the previous month, and linked the fall to rising prices.