Germany heading for recession

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08/13 02:08 German Retail Sales Drop 1.8% in June, Rise 0.5% From Year Ago By Christian Baumgaertel

Wiesbaden, Germany, Aug. 13 (Bloomberg) -- German retail sales declined for the fourth time in five months in June, suggesting consumer spending is too weak to keep Europe's largest economy from stalling.

Sales fell 1.8 percent from May, the Federal Statistics Office said. Analysts had expected a decline of 0.6 percent. Sales increased 0.5 percent from a year earlier.

Tax cuts worth 45 billion marks ($21 billion) this year have failed to boost sales, as rising energy and food prices took money out of shoppers' pockets. Still, recent reports show inflation slowing, giving the European Central Bank scope to lower borrowing costs to boost the sputtering economy.

``In Germany, GDP growth will be, let's be optimistic, 1.2 percent and not more,'' said Herbert Hainer, chief executive of Adidas-Salomon AG, the No. 2 maker of sporting goods. ``Inflation is going down and this is a signal that they can react now with interest rates.''

Retailers expect sales, adjusted for inflation, to stall this year, forcing companies to cut jobs to boost profit, Germany's BAG retailers association said.

Villeroy & Boch AG, a German porcelain maker, on Wednesday said second-quarter tableware sales dropped and it doesn't see an improvement for the rest of 2001. The company has eliminated 260 jobs this year.

German unemployment has risen every month this year. Real wages declined in the first quarter for the first time since 1997, as price increases more than offset wage gains.

Inflation Slowing

Inflation in the dozen countries using the euro was 3 percent in June, a full percentage point above the ECB's target, though analysts expect the inflation rate to have fallen to 2.8 percent in July. German inflation declined to 2.6 percent in July as fuel and food prices declined.

``In the absence of further unfavorable shocks, the decline in consumer price inflation is expected to continue,'' the ECB said on Thursday, suggesting it may lower interest rates a second time this year after policy makers return from their summer break Aug. 30.

Investors see lower rates by the end of the third quarter, futures trading suggests. The yield on the Euribor interest rate futures contract maturing in September was 4.15 percent, 35 basis points below the ECB's main rate.

Declining inflation ``should contribute in the latter part of this year and particularly in 2002 to the recovery of consumption in the euro area,'' the ECB said in its August report.

Gehe AG, Europe's biggest publicly traded drug wholesaler and retailer, said Thursday first-half profit rose 16 percent on growth in its retail business.

-- Guy Daley (guydaley1@netzero.net), August 13, 2001

Answers

If Germany ever gets around to interest rate cuts, and they have as much effect as Greenspan's 275 basis points worth of cuts here, Germany doesnt have much to look forward to.

-- Billiver (billiver@aol.com), August 13, 2001.

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