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August 4, 2009

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Crisis grips Germany as retail spending declines

GERMAN retail sales saw an unexpected month-on-month fall in June as the global crisis maintained its grip on Europe's biggest economy, an official estimate showed yesterday.

The 1.8 percent drop, compared with May, followed a 1.3 percent decline in the previous month. That contrasted with economists' expectations that sales would improve slightly or, at worst, stagnate in June.

Compared with June 2008, retail sales were down 1.6 percent, the Federal Statistical Office said. Over the first six months of the year, retail sales were 2.1 percent lower than for January to June 2008.

"The crisis has now reached retail too," economist Simon Junker at Commerzbank in Frankfurt said in a research note. "This supports our prediction that Germany's economy has shrunk again in the second quarter, albeit only moderately."

Junker said although "the German economy is likely to pick up in the coming months, retail will probably not benefit very much in the months ahead," with support for sales coming at most from an inflation rate that went into reverse last month.

"The labor market will hit retail sales significantly," he added. "The number of unemployed should continue rising well into next year."

Retailer Metro AG, whose stores include the Kaufhof department store chain and electronics chain Media Market and Saturn, said yesterday that second-quarter sales slipped nearly 4 percent as consumer bought fewer items.

Germany's economy went into recession last year as the global crisis sapped demand for its exports and is expected to shrink sharply in 2009.


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