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Economy in Brief

German Retail Sales Ere Even Weaker - How Is It Possible?
by Robert Brusca  March 30, 2012

German retail sales trends are unambiguously weak. Expressed in volume terms excluding autos they are falling at an accelerating pace. Auto registrations alone are falling at an increasingly sharp pace. The events in Spain should be chilling to markets and to sentiment but they seem to taken more or less in stride.

German confidence did edge a bit lower last month and the GFK reading of the UK has just come in lower. France and Italy were showing some increases but with elections in France that reading is not very reliable. Election years can foul up consumer confined measures.

In the chart and table above Germany hardly looks like what it is: the strong country in the Euro-Area. What is going on with the German consumer and why is not the low rate of unemployment leading to more consumption in Germany?

The real story of Germany, to be blunt, is that it is a parasite economy. Its domestic demand lags. It has a labor force with different values than most. It will live with low wage increases and low inflation. It has lured other EMU members into a currency bloc and let them run such persistently higher rates of inflation with no criticism of it!) that Germany now OWNS any domestic demand that other EMU countries can generate. Germany is like the vampire squid economy of Europe. Now it’s kind of caught in its own huge blinding squirt of ink, since its banks have to lent to these other EMU countries to finance their excessive consumption, but on the real-economy side of things, the German economy is eating their lunch, however, meager.

Some think that the solution is to knock the euro down on FX markets; that is something that might help Spain and Portugal and Italy and others...and it will absolutely enrich Germany with its hugely advantageous competiveness position in the EMU region.

On one hand it is easy to extol the virtues of Germany for its relative prudence. But its banks helped to recycle funds Germans would not borrow to fuel excess consumption in the other places in the Zone. When there is a crisis, the lesson is that bankers get coddled and the borrower-homeowner gets put on the short leash and gets the lecture and the penalties. That’s exactly how Europe is playing out.

I think that EMU has let inflation differences- parities- get so far from their starting point so that there is no going back. It needs a whole re-benchmarking or split up. Maybe the very strongest (lowest inflation nations) need to leave the Zone. But the Zone seems to have outlived its workability. It is in real need of change and not tinkering. I don’t see how or why financing it to let these disequilibria conditions persist makes any sense. And I don’t see actions being taken to make the less competitive more competitive. I just see austerity piled on top of high indebtedness and that will only lead to ruin.

The fact that Germany is not the engine of growth and will not bear the financial burden of rebuilding Europe as its financial pillar is the real truth of the role of the German economy. It is in EMU to take not to give. EMU is fine as long and it becomes more and more Germanic. And that is the final lesson. It might end when the zone is renamed GMU.

German Real and Nominal Retail Sales
Nominal Feb
3Mo 6Mo 12Mo YrAgo QTR
Retail Ex auto -0.2% -0.6% -0.2% -3.8% -0.8% -0.3% 4.1% -3.9%
Car Registrations (units) -1.8% -2.6% 0.6% -14.5% -9.5% -4.7% 14.5% -12.7%
Real Feb
3Mo 6MO 12MO 4.1% SAAR
Retail Ex Auto -1.1% -1.2% 0.5% -7.1% -3.8% -2.4% 2.2% -7.2%
Other Early Reporters
UK Nominal -0.4% 0.5% 0.6% 2.6% 4.7% 3.3% 4.9% 2.9%
UK real -0.8% 0.3% 0.7% 0.8% 2.8% 1.0% 0.5% 1.4%
Italy Real 0.5% -1.1% -0.8% -5.4% -5.5% -4.6% -2.3% -6.5%
Spain RetailXAuto 1.9% 0.7% -0.7% 7.9% -1.0% -1.0% 0.2% 6.3%
Portugal-Real 1.6% -2.2% 2.5% 7.6% -16.1% -9.0% -3.7% -3.2%
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