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German Retail Sales Plunged in December

Reichstag Parliment building, Berlin, Germany
Martin Child | Photodisc | Getty Images
Reichstag Parliment building, Berlin, Germany

German retail sales tumbled by their largest amount in over three years in December, preliminary data showed on Thursday, denting hopes that private consumption can compensate for weaker exports and lift Europe's largest economy this year.

The notoriously volatile indicator slid by 4.7 percent compared to a year ago, the weakest annual result since May 2009. On a monthly basis, the fall was a more modest 1.7 percent, still the biggest drop since May 2011.

"These are disappointing numbers," said Christian Schulz of Berenberg Bank. "Consumers are not opening up their wallets."

Economists polled by Reuters had expected retail sales to fall by 0.1 percent on the month and by 1.6 percent on the year.

(Read More: If Germany Sneezes, Does Euro Zone Catch a Cold? )

German unemployment has been creeping higher for nearly a year, but still remains close to post-reunification lows. Wages are also on the rise thanks to Germany's strong performance during the euro zone debt crisis.

But these factors have not yet translated into robust increases in private consumption. Gross domestic product (GDP) contracted by 0.5 percent in the fourth quarter of 2012, according to an early estimate from the Statistics Office, and the government is forecasting meager growth of 0.4 percent this year.

Exports to big trading partners in Europe are slowing as the debt crisis enters its fourth year, and Berlin now expects foreign trade to be a drag on GDP in 2013.

According to a breakdown of the retail data, sales fell almost across the board in December, with food, drinks and tobacco down 4.1 percent on an annual basis in real terms, and clothes, shoes and textiles down 6.5 percent.

Still, some economists warned against reading too much into the data, pointing to anecdotal evidence from retailers on their Christmas sales.

"The retailers did not report sensational Christmas sales, but they were broadly satisfied. It's hard to reconcile this with the strong decline we've seen here," said Alexander Koch of Unicredit.

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