October 1, 2018 / 9:55 AM / 9 months ago

Weak German data points to growth slowdown in third quarter

BERLIN (Reuters) - German retail sales fell unexpectedly for the second month in a row in August and factories shifted into a lower gear in September, data showed on Monday, suggesting that Europe’s largest economy has lost steam over the summer.

Iron railings are seen in front of a jewelry shop at the famous shopping street Goethestrasse in Frankfurt, Germany, April 14, 2016. REUTERS/Kai Pfaffenbach/File Photo

Household spending has become a key growth driver in Germany where consumers benefit from record-high employment, rising real wages, strong job security and low borrowing costs.

But trade disputes abroad and political tensions at home are both leaving their mark on a still exports-dependent economy which is now in its ninth year of expansion.

Retail sales edged down by 0.1 percent on the month in real terms in August, the Federal Statistics Office said. This was weaker than the Reuters consensus forecast for a 0.4 percent rise and followed a revised drop of 1.1 percent in July.

On the year, retail rose by 1.6 percent, beating the Reuters consensus forecast for a 1.5 percent increase and following a revised 0.9 percent increase in July.

“The economic environment for consumption is still excellent, but many consumers are worried about U.S. tariff disputes and the many open conflicts in the federal government,” HDE retail association head Josef Sanktjohanser said.

Chancellor Angela Merkel’s ruling coalition has quarrelled over asylum seekers, immigration and right-wing extremism over the past months which brought the government close to collapse.

Sanktjohanser said policymakers must now ensure stability and dependability at all levels so that consumers would not be unsettled further by political bickering.

In a further sign that the economy slowed over the summer, a survey among purchasing managers in manufacturing showed that growth eased to a 25-month low in September as new export orders posted the steepest drop in more than five years.

“It was inevitable that growth would pull back from the high levels seen last year, but the recent waning of exports has really taken the wind out of manufacturers’ sails in the last couple of months,” IHS Markit economist Phil Smith said.

He pointed to the escalating trade conflict between the United States and China, uncertainty surrounding Britain’s planned exit from the EU and Turkey’s currency crisis.

Leading economic institutes said last week they expect Germany’s quarterly growth rate to slow to 0.1 percent in the third quarter after 0.4 percent in the first and 0.5 percent in the second. They also blamed bottlenecks in the car industry caused by new environmental standards for the slowdown.

The data followed a GfK survey published last week that showed the mood among German shoppers improved heading into October, suggesting that consumers will feed growth again in the fourth quarter despite rising inflation.

Additional reporting by Joseph Nasr, editing by Ed Osmond

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