Germany’s retail sales unexpectedly fell by 1.6% in May from April, according to the federal statistics office, surprising analysts who had forecast a 0.5% rise.
This marks a sharper drop than the 0.6% decline seen the previous month and raises fresh concerns about the strength of consumer spending heading into the second quarter.
Retail sales tumble despite expectations
Retail figures showed a sharper contraction than anticipated, following a 0.6% drop in April.
Economists warn that a recovery in spending is unlikely in the short term, making sustained economic momentum doubtful after strong first‑quarter growth spurred by earlier consumption.
Alexander Krueger of Hauck Aufhaeuser Lampe remarked that "[a] large and sustained jump in consumption is not expected for the time being".
Weak consumer sentiment and rising savings
Consumer mood has cooled, with GfK and NIM surveys recording sentiment at minus 20.3 points for July. The survey of roughly 2,000 households highlighted an increase in saving tendencies amid lingering uncertainty.
This cautious stance contradicts government and business hopes that consumption would shore up economic activity as export growth wanes.
Inflation hints at stability but still weighs
The dip in retail sales comes ahead of June inflation data, expected later today to show a slight rise to 2.2% from May's 2.1%.
Preliminary figures from three key German states—Bavaria, North Rhine-Westphalia and Lower Saxony—suggest inflation eased to around 1.8–2.2%, though Baden-Württemberg saw a minor uptick.
Economists view this as a sign of stabilising price pressures that may allow the European Central Bank to hold steady on interest rates.
Outlook: second-quarter growth likely restrained
Analysts including Thomas Gitzel of VP Bank say first‑quarter growth is unlikely to be repeated in Q2.
With retail sales dropping and consumers hoarding cash, the prospect of a robust second-quarter performance seems remote. While some manufacturing and services activity has returned to growth, domestic demand remains weak.
Ultimately, consumer spending drives headline growth in Germany’s economy. The unexpected retail sales drop in May, coupled with cautious sentiment and steady inflation, signals that domestic demand may struggle to pick up pace in the near term.
That could constrain GDP gains in the months ahead.
