UPDATE 1-German retail sales fall more than expected in Oct
* Retail sales down 2.8 pct m/m, vs forecast 0.2 pct fall
* Economists say disappointed but don't expect sales slump
* Dents hopes private consumption to support growth (Adds details, background)
By Sarah Marsh
BERLIN, Nov 30 (Reuters) - A bigger than expected drop in German October retail sales dented hopes on Friday that private consumption could compensate for the impact of the euro zone crisis on export activity in Europe's largest economy.
The notoriously volatile retail indicator was down 2.8 percent on the month in real terms and 0.8 percent on an annual basis, preliminary data showed on Friday. Economists polled by Reuters had forecast retail sales would fall by 0.2 percent on the month and gain 1.2 percent on the year.
"This is a serious disappointment, as consumer confidence is high, the financial crisis has calmed down, stock markets are functioning well," said Christian Schulz of Berenberg Bank.
"The hope is that Christmas sales will be all the better. Unemployment remains low, inflation as well, real incomes are rising. All of this promises rising consumption."
Germany proved largely immune to the first two years of the European debt crisis but recent data suggested its resilience is wearing thin, with growth slowing to 0.2 percent in the third quarter.
Data this month showed the private sector shrinking, industrial orders and output down and exports falling at their fastest pace since late last year.
Many economists had expected domestic demand on the back of a robust labour market could help prop up growth in traditionally export-driven Germany, as demand in the crisis-hit euro zone and beyond weakens.
Germany's labour market remains robust compared to other European countries, offering some support to consumption, but unemployment rose for the eighth straight month in November.
"[The data] suggests that the German economy will shrink in the fourth quarter," said Ralph Solveen, an analyst at Commerzbank. "We do not expect consumption to slump however, given low unemployment and rising wages."
Sportswear group Adidas has trimmed its 2012 sales forecast and retailer Metro reported a bigger-than-expected drop in quarterly profit as it cuts prices to lure crisis-hit customers. Metro warned the outlook, even at home, was worsening.
Nonetheless, Germany's HDE retail association said earlier this month it expected retail sales to grow by a nominal 1.5 percent to a record 80.4 billion euros in the Christmas season. (Additional reporting by Stephen Brown and Rene Wagner; Editing by Robin Pomeroy)
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