German Retail Sales Jumps 1.6% in August, But ECB Rate Cut Bets Remain in Question

German Retail Sales Surge in August

On Thursday, October 10, the German economy was back in focus as speculation intensified about a recession. Retail sales rose by 1.6% in August, following a 1.5% increase in July.

According to Destatis,

• Food retail sales increased by 1.9% in August and were up 2.4% year-on-year.
• Non-food retail trade advanced by 1.1% in August and by 1.2% compared with August 2023.
• E-commerce and mail-order sales surged by 8.9% month-on-month and were up 10.8% compared with August 2023.
• Supporting broader consumption trends, retail sales were 2.1% higher year-on-year in August.

Retail Sales Ease Recession Concerns

Private consumption contributes over 50% to the German economy, making the upswing in retail sales significant. The positive trend contrasts with expectations of a 2024 economic contraction. On Monday, the German government forecast the economy will contract by 0.2% in 2024 after shrinking by 0.3% in 2023.

Impact on ECB Monetary Policy

The retail sales numbers could temper bets on multiple Q4 2024 ECB rate cuts. Stronger spending may fuel demand-driven inflationary pressures. Higher consumer price trends may force the ECB to assess upcoming inflation figures before committing to rate cuts in October and December.

However, the ECB may also consider other economic indicators, including private sector PMI surveys, factory orders, and trade data. Germany’s economic woes could spill over into the broader Euro area, potentially impacting the resilient labor market.

Expert Views on German Retail Sales

Oxford Economics Chief Germany Economist and ECB Commentator Oliver Rakau commented on the August retail sales report, stating,

“German retail sales data hasn’t been published in a while, but at least Jul/Aug figures are relatively positive, up >1% on Q2, so it would need a very bad September to turn that around. But with industry headed for a similar fall odds of a negative Q3 GDP are reduced not gone.”

EUR/USD Reaction to German Retail Sales

Before the retail sales report, the EUR/USD dropped to a low of $1.09362 before climbing to a high of $1.09457.

However, following the release, the EUR/USD fell to a low of $1.09362 before rising to a high of $1.09394.

On Thursday, October 10, the EUR/USD was down 0.01% to $1.09377.

Up Next

Later in the Thursday session, the crucial US CPI Report will draw investor interest, a key indicator for the Fed. Economists forecast the annual inflation rate will ease from 2.5% in August to 2.3% in September.

Softer-than-expected figures could boost investor bets on a 25-basis point November Fed rate cut. However, a fall below the Fed’s 2% target could reignite expectations of a 50-basis point Fed rate cut.

Additionally, the weekly jobless claims data will also be in focus, though the figures will likely play second fiddle to the CPI Report.