Monday, March 5, 2012

Germany Needs to Consume

Bloomberg details:

European retail sales unexpectedly rebounded from four months of declines in January, as growth in France helped to offset a drop in Germany.

Sales rose 0.3 percent from December, when they fell a revised 0.5 percent, the European Union’s statistics office in Luxembourg said today.
Not as much good news in Germany:
In Germany, Europe’s largest economy, retail sales fell 1.6 percent from December, when they advanced 0.1 percent, today’s report showed.
Which means everything in Germany is apparently "normal" and rebalancing across European countries is still nowhere near happening.

Over the past 10 years, German retail sales neither rose nor fell more than 5% from January 2002 levels (see below) in real terms. On the other hand, we can see the extreme rise and fall of Greece retail sales, the surprising (recent) resilience of Irish retail sales after an even sharper rise, and the battle between Spain, Greece, and Portugal for furthest overall decline from 2002 levels (Spain data is missing over the past two months).



While I was well aware of the relative lack of personal consumption in Germany relative to investment and exports, it is still amazing to see how little retail sales have grown. No wonder the average German citizen doesn't want to pay for the rest of the European peripheral's "sins". On the other hand, those sins largely benefited German corporations that exported these goods.

The issue that you regularly hear about is the need for Europe to rebalance. Without the Euro, this would entail a rise in German currency which would make German exports more expensive and goods more affordable for the average German citizen (perhaps even leading to German imports from the periphery, though not sure what they really make that Germans would want). Without that flexibility, rather than a rise in sales in Germany, we may just see a continued decline in sales elsewhere.

Source: Eurostat