German retail sales register surprise drop

German retail sales unexpectedly fell in July, frustrating hopes that household spending would help drive a strong recovery in Europe's biggest economy.

Retail sales dropped 0.9% in real terms from the previous month, missing a consensus forecast for a 0.5% increase. Sales fell despite a VAT cut introduced on 1 July.

The figures from Destatis painted a brighter picture compared with a year earlier. Sales were 4.2% higher in July 2020 in real terms. Compared with February 2020, the month before Covid-19 spread in Germany, sales were 0.9% higher in July.

Sales of food, drinks and tobacco rose 4.2% in real terms from July 2019. Non-food sales rose 4.4%, led by online and mail order purchases.

Sales of furniture, building materials and household gadgets rose 12.9% as purchases of clothing, shoes, textiles and leather goods dropped 8%. The figures appear to show households spending more time at home and not buying new outfits for going out or work.

Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, said the figures were "another setback" for the German economy but that the country's V-shaped rebound would remain intact.

"These numbers are a perfect example of the reality that Q3 as a whole will look decent, even as growth is now slowing," he said.

Recent figures showed households in Germany are increasingly wary about the future. Consumer confidence fell in August because of rising Covid-19 infections and fears of further restrictions to stem the spread of the virus.