UPDATE 1-German retail sales fall again in June

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By Michelle Martin

BERLIN, July 31 (Reuters) - German retail sales fell for the third month running in June compared to May, denting hopes that domestic consumers will be the saving grace for Europe's largest economy this year.

The notoriously volatile indicator was down 0.1 percent on a monthly basis, missing the consensus forecast in a Reuters poll for it to rise by 0.5 percent, preliminary data showed on Tuesday.

"Retail sales are giving hardly any growth impetus for the second quarter, neither is the wholesale sector," said Commerzbank's Ulrike Rondorf.

"Germany cannot expect its gross domestic product to grow much - it will be moderate and in the summer quarter it could even shrink," she added.

With much of the rest of Europe in or sliding into recession and importing fewer German-made goods as a result, the onus is on ordinary Germans to help a traditionally export-driven economy weather the economic storm.

German retail sector companies are feeling the chill of the euro zone crisis, with sportswear maker Puma saying last week it would reduce the number of products it sells and cut back on sponsorship deals. Department store chain Karstadt plans to slash 2,000 jobs by the end of 2014.

German inflation is at an 18-month low of 1.7 percent, however, which should boost consumer morale, and a survey last week showed sentiment improving heading into August as Germans shun the ultra-low interest rates offered by banks in favour of spending.

On an annual basis, retail sales climbed by 2.9 percent in real terms, coming in well ahead of the median forecast in a Reuters poll for them to increase by 0.4 percent, and some economists said wage deals and a stable employment situation meant consumption was likely to hold up.

"Consumers are noticing that things are getting worse and even the first German companies are having problems but this is more than compensated for by the solid wage agreements and low unemployment," said Rainer Sartoris at HSBC Trinkaus.

"That will support consumption this year and next year."

German workers have demanded higher wage deals this year and have negotiated rises that outstrip inflation, with Germany's largest industrial union IG Metall securing its biggest pay rise in 20 years.

Unemployment data is due out later on Tuesday, with economists expecting the unemployment rate to hold steady at 6.8 percent, close to its lowest since the reunification of Germany two decades ago.

In May retail sales decreased by 0.3 percent on the month and 1.1 percent on the year. (Additional reporting by Rene Wagner; editing by Patrick Graham)