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Tuesday, July 31, 2007

German Retail Sales and the VAT Hike

Guest Post by Claus Vistesen

German retail sales rose (slightly) in June over May 2007, but what a song and dance Bloomberg make about this:

"Retail sales in Germany, Europe's largest economy, rose in June as the effect of an increase in sales tax at the start of the year waned. Sales, adjusted for inflation and seasonal swings, rose 0.7 percent from May, when they declined 2.5 percent, the Federal Statistics Office in Wiesbaden said today.......Germany may be able to rely more on domestic demand to drive economic expansion as the impact lessens of the Jan. 1 increase in value-added tax, a levy on sales."

Now, none of this is at all apparent, neither the rise in sales, nor the ability to rely on domestic demand (as I argue here). So lets see what the German Statistical Office actually say:

Turnover in retail trade in June 2007: – 0.8% in real terms on June 2006

WIESBADEN – According to provisional results of the Federal Statistical Office, turnover in retail trade in Germany in June 2007 was in nominal terms 0.2% and in real terms 0.8% smaller than that of the corresponding month of the previous year. The number of days open for sale was 26 in June 2007 and 25 in June 2006.

When adjusted for calendar and seasonal variations (CENSUS-X-12-ARIMA), the June turnover was in nominal terms 0.6% and in real terms 0.7% larger than that of the preceding month.

Compared with the corresponding period of the previous year, retail turnover was in the first six months 2007 in nominal terms 0.8% and in real terms 1.5% smaller than that in the first six months of 2006.

Now, look at the headline. That's right, retail sales year on year were actually 0.8% down in June 2007 over June 2006. So we can all see what is going on I have prepared a small chart which shows the retail sales time series from January 2006.

As we can see, retail sales seem to have had a small spike in April 2007, and apart from that they are down in the first half of 2007 over the 2006 level (0.8% over six months). The German economy is by all accounts having a big export lead boom, so what is happening to retail sales. And what was that Bloomberg was saying about a demand driven recovery?