March 4, 2020 / 10:24 AM / a month ago

UPDATE 1-German retail sales up in January, coronavirus clouds outlook

* German retail sales up after falling in December

* New passenger car registrations fall in February

* Coronavirus epidemic hits hotels, travel companies

* Government provides liquidity aid, labour market tools (Adds PMI, more coronavirus cases in Germany)

By Michael Nienaber

BERLIN, March 4 (Reuters) - German retail sales recovered in January after plunging in December, data showed on Wednesday, suggesting that consumers helped prop up growth in Europe’s largest economy before the outbreak of the coronavirus.

Retail sales rose 0.9% on the month in real terms after an upwardly revised drop of 2.0% in December, data from the Federal Statistics Office showed. A Reuters poll of analysts has forecast a 1.0% increase.

On the year, retail sales rose by 1.8% in real terms after an upwardly revised rise of 1.7% in December, the data showed.

The figures suggest that household spending had been holding up in Germany at the start of the year. But that was before the coronavirus outbreak.

Germany has now reported 240 cases of the virus, which emerged in China late last year and is spreading around the world. It has killed nearly 3,200 people, though Germany has not reported a fatal case yet.

The epidemic is expected to weaken domestic demand in the weeks ahead, which could throw the German economy into a recession. Gross domestic product had already stagnated in the fourth quarter of last year as exports fell.

A survey in February showed that German consumer morale deteriorated heading into March as fears that the coronavirus outbreak could worsen an economic slowdown made Germans less willing to spend.

CAR SALES DOWN

German new passenger car registrations declined by 11% year-on-year in February to just under 240,000 vehicles, a source familiar with the figures told Reuters on Wednesday.

It was not immediately clear if the decline was related to the coronavirus outbreak. German car authority KBA is due to publish official figures later on Wednesday.

A survey among purchasing managers showed on Wednesday that growth in services slowed in February to its lowest point in three months as the coronavirus curtailed new business with China and other foreign clients.

The data showed an immediate effect from the coronavirus outbreak on foreign demand, said Phil Smith, principal economist at IHS Markit, which compiled the purchasing managers’ index.

Germany’s domestic market still looked to be holding firm. But given the spread of (the disease) to many other parts of the world, including Germany, and the subsequent financial market reaction, it would seem that this domestic resilience is about to be broken,” Smith said.

China is Germany’s biggest trading partner. Manufacturers depend on both Chinese demand and supply chains.

Domestic businesses hit by the outbreak include hotels and transportation companies, after several international fairs were cancelled, including Germany’s ITB Tourism Fair, which was due to take place in Berlin this week.

Berlin is helping small- and medium-sized firms to bridge sudden liquidity problems and avoid lay-offs through labour market instruments such as Kurzarbeit programmes.

Finance Minister Olaf Scholz and Economy Minister Peter Altmaier have said the government is ready to do everything it takes to shield the economy from the impact of the coronavirus. Senior members of the government are expected to discuss additional measures at a meeting on Sunday. (Reporting by Michael Nienaber and Jan Schwartz, editing by Larry King)

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