German retail sales crash in January

German retail sales sank at the start of 2021 as the sector was clobbered by Covid-19 restrictions and a three percentage point hike in the country's value added tax.

According to the Office of Federal Statistics, retail sales volumes shrank at a month-on-month pace of 4.7% in January, missing forecasts for a 0.7% increase by a wide margin.

Retail sales also fell sharply in comparison to a year ago, dropping by an outsized 8.7% (consensus: 1.7%) in non-working-day-adjusted terms, following a 2.8% rise in December.

Adjusted for lack of one working day, the year-on-year rate declined from 0.2% for December to -5.5%.

According to Claus Vistesen at Pantheon Macroeconomics, the volatility in the data likely overstated the weakness in retail sales but nevertheless pointed to a "shocker" when first quarter domestic product figures were released.

German retail sales had jumped at a 8% clip year-on-year in the backhalf of 2020, thanks to the boost from the temporary cut in VAT in July.

Now on the other hand they were on track to fall at a quarter-on-quarter pace of 8-10% over the three months to the end of March.

Separately, figures from the Federal Labor Agency revealed that jobless claims rose by 9,000 in February (consensus: -10,000), although the country's rate of unemployment was steady at 6.0%, as expected.

Commenting on the jobs figures, Vistesen said: "Overall, however, the data continue to suggest that Germany's labour market is, and has been, resilient in the face of new lockdowns.

"Significant further deterioration would be needed to change that story, and we are not expecting this, at least not based on the still-solid numbers in the IAB labour market survey indicator."