Job­less drop, Re­tail sales fall paint mixed pic­ture of Ger­many

The Gulf Today - Business - - Special Report5 -

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.

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