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EURUSD Softer After Weak German Retail Sales

James Boston
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EURUSD Softer After Weak German Retail Sales

Retail Sales figures out of Germany this morning are showing their largest monthly drop in over seven years. The September numbers show a month on month contraction of -3.2%, this is in contrast to the final August number of 1.5% growth in sales, the swing would have been larger if the August figure had not undergone a significant downward revision, market analysts had been prepared for a negative number today but only in the region of around -1.0%. Despite the monthly fall in sales, the year on year number is proving somewhat resilient, the latest reading for the year to September is showing a gain of 2.3% overall, this is up on the August reading of -0.7% and easily beat the consensus estimate of 0.8%.

The continual feed of weak economic data from the Eurozone’s largest economy is raising concerns for the onset of recession. Second quarter GDP growth in Germany came in at -0.2% which implies that a negative third quarter would move the country into a technical recession. There is no indication of the Q3 reading as of yet but at this time analysts are split on whether it will be positive or negative. Either way a large reading above or below the line is not expected which means that even if it transpires that growth is present it would be very moderate.

The prospect of a technical recession, two negative quarters of GDP growth, is somewhat cosmetic, the real issue is the lack of growth prospects in this major European economy. Germany has the resources and the headroom in it’s budget deficit level to ride out any recession, the problem however is not Germany itself but it’s status as a flagship Eurozone economy. Difficulties in the German economy not only weigh on other Eurozone members but additionally they erode Germany’s authority as the economic policeman of the single currency bloc.

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