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German Retail Sales Increase at Sharpest Rate in 7 years

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German Retail Sales Increase at Sharpest Rate in 7 years

German retail sales in January rose at the fastest rate in seven years, a sign domestic consumption will continue to drive recovery in Europe’s largest economy.

Retail sales increased 2.5 percent in January, following a revised 2.1 percent decline the prior month, official data from the Federal Statistics Office revealed today. Annually, retail revenues increased 0.9 percent after falling 1.5 percent the previous month. Economists in a Reuters survey forecast a monthly gain of 1 percent and an annualized drop of 1.2 percent.

Retail sales are a guidepost for consumer spending and overall confidence. However, data on retail sales should be read with some caution, economists warn, as they are often volatile and subject to revision.

January marked the retail sector’s biggest increase since February 2007, boosting optimism domestic demand will continue to underlie recovery in 2014. Germany’s gross domestic product increased 0.4 percent in the final quarter of 2013, led by improvements in foreign trade. Domestic consumption, which was the lynchpin of the German economy for much of last year, moderated, official data confirmed earlier this week.

Last month’s results show domestic demand continues to drive recovery in Europe’s largest economy. With unemployment easing and consumer confidence rising, the outlook for consumption is strong. Recognizing these trends, the European Commission raised its outlook for Germany earlier this week. The economy is forecast to expand 1.8 percent this year and 2 percent next year, the Commission said. This represents an increase of 0.1 percentage point for both years.

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