Germany's retail sales rose by 0.8% in February, surpassing analysts' expectations of a 0.2% increase, according to data released on Monday. The statistics office also revised January's sales growth upward to 0.7% from the initially reported 0.2%.
"This is very good news for growth in the first quarter," said Thomas Gitzel, chief economist at VP Bank.
However, despite the strong retail data, concerns over Germany's economic outlook persist. The country's economy shrank in the final quarter of last year, raising fears of a recession—defined as two consecutive quarters of negative growth.
Consumer Spending Faces Challenges
While retail sales show signs of resilience, economists do not foresee a major spending boom. Consumer sentiment remains weak, and uncertainty has grown following former U.S. President Donald Trump's announcement of a 25% tariff on imported vehicles. This move is expected to hit German automakers hard, potentially deepening economic struggles.
"The bad mood among consumers is a dent in further spending enthusiasm," noted Alexander Krueger, chief economist at Hauck Aufhaeuser Lampe Privatbank.
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A rising unemployment rate has also dampened consumer confidence. The number of unemployed rose by 26,000 in March to 2.92 million, edging closer to the 3 million mark for the first time in a decade.
"Worries about one's own job are currently increasing as a brake on consumption," Krueger added.
Inflation on the Horizon
Germany's import prices surged 3.6% year-on-year in February, marking the sharpest rise in over two years, driven by higher food prices. Given Germany's reliance on imported raw materials, these costs are expected to fuel inflation in the coming months.
National inflation data for March is set to be released later on Monday, with the rate projected to slow slightly to 2.4% from 2.6% in February. However, regional data suggests a mixed trend: inflation accelerated in Saxony and Hesse, slowed in Bavaria and Baden-Württemberg, and remained unchanged in Brandenburg and North Rhine-Westphalia.
Despite a temporary boost in retail sales, economists remain cautious. "The savings rate is still high, and households are holding back on spending," said Stefan Genth, managing director of the retail association HDE. This suggests that a sustained retail recovery is unlikely in the near term.
With rising inflation, trade tensions, and job market concerns, Germany's economic recovery remains uncertain.
