German economy sends mixed signals

 German economy sent mixed signals in recent days. As domestic demands remained stable in the Europe’s largest economy, external uncertainties continued to pose risks to its recovery.
On Thursday, German Federal Statistical Office said retail sales in Germany in June grew by 0.4 percent in real terms compared with the same month of previous year, and by 1.3 percent month-on-month when adjusted for inflation, calendar and seasonal variations.
In the first half of 2014, German retail sector saw a year-on-year growth of 1.5 percent in sales. This was good news for German economy, which was expected to be driven mainly by domestic demands this year.
A recent survey by market research institute GfK showed German consumers’ morale into August climbed to the highest level since December 2006. Thanks to stable labor market, low inflation and high expectation of income, Germans were still willing to open their wallets.
“The labor market as a whole is stable,” said Frank-J. Weise, chief of Federal Labor Agency, in a press conference on Thursday.
According to data released by the agency today, the number of unemployed, adjusted for seasonal swings, dropped by 12,000 in July compared with the previous month. Adjusted jobless rate remained at 6.7 percent.
Federal Statistical Office said that adjusted jobless rate based on concept of International Labor Organization (ILO) stood at 5.1 percent in June, the second lowest in the euro zone, where the average unemployment rate was 11.5 percent.
GfK forecast private consumption in Germany to grow by 1.5 percent in 2014. A prosperous private consumption, however, does not represent the whole landscape of German economy. Industry groups have been warning that geopolitical tension would bring uncertainties to German economy’s recovery and risk jobs.
Also on Thursday, German Engineering Association (VDMA) cut its forecast for output of machine and engineering industry to 1 percent from its previous expectation of 3 percent.
“In recent months, business risks and associated uncertainty among investors increased significantly. In this context, the Ukraine crisis is particularly significant,” said VDMA chief economist Ralph Wiechers.
“The conflict with Russia affects not only bilateral trade. It has a negative impact on demand in important sales markets for our industry,” he said.
Earlier this month, Association of German Chambers of Commerce and Industry (DIHK) warned that sanctions against Russia, which was Germany’s third largest trading partner outside the European Union and delivered one third of Germany’s imported oil and gas, had affected one fourth of its exporters.
Due to the Ukraine crisis, the umbrella group of German commerce chambers has downwardly adjusted its forecast for German exports growth by 0.5 percentage points to 4 percent in 2014.
Committee on Eastern European Economic Relations, another influential German lobby group, expressed its concern by saying that the conflicts with Russia would harm German exports especially, and risk more than 25,000 jobs in Germany.
In its latest monthly report in July, German central bank Bundesbank estimated that German gross domestic product (GDP) stagnated in the second quarter, following a strong growth of 0.8 percent, which doubled the growth of 0.4 percent during the last three months of 2013.
Bundesbank attributed the zero growth to calendar effects, as well as “the increased geopolitical tensions.”
Official data of German second quarter GDP was scheduled to be released on August 14th. For the whole year of 2014, German government expected the economy to expand by 1.8 percent.