German Recovery Broadened in 2010 as Retail Sales Rose Most in Five Years

Germany’s recovery broadened in 2010 as consumer spending strengthened and companies increased investment in Europe’s largest economy.

Retail sales may have increased as much as 1.6 percent in 2010, the Federal Statistics Office in Wiesbaden said today, citing an estimate based on the first 11 months of the year. That would be the biggest gain since 2004, when sales increased 2 percent. Exports, adjusted for working days and seasonal changes, rose 0.5 percent in November from the previous month, half of what economists had expected, a separate report showed.

The Bundesbank estimates Germany’s economy grew 3.6 percent last year, the most since reunification two decades ago, as foreign demand fueled hiring. Unemployment dropped by 262,000 people in 2010, boosting consumer confidence, and business sentiment rose to a record last month.

“The German economy might surprise us yet again this year,” said Klaus Schruefer, an economist at SEB AG in Frankfurt, who forecasts the economy to expand 2.7 percent in 2011. “Consumption is supporting growth, investment is providing strong impulses and exports remain an important pillar. The recovery continues.”

Strong Orders
German industrial production declined 0.7 percent in November, more than economists forecast, as energy and construction output slumped, the Economy Ministry said in an e- mailed statement today. Still, the outlook for the country’s manufacturing industry over the coming months remains positive, given “strong orders,” the ministry said.

Factory orders rose five times more than expected in November, driven by demand from outside the euro region, a separate report showed yesterday.

The German economy powered the euro-area’s recovery last year. It has “fared much better” than anticipated, European Central Bank President Jean-Claude Trichet said today in Wildbad Kreuth, Germany. The Bundesbank’s growth estimate for 2010 is more than double the 1.7 percent pace the ECB has projected for the currency region. The central bank’s Governing Council holds its first interest-rate meeting of 2011 on Jan. 13.

Retail Sales
German retail sales, adjusted for inflation and seasonal swings, dropped 2.4 percent in November from October, when they rose 0.1 percent. The data will probably be revised up, the statistics office said, as it estimated a 2010 increase of between 1.3 percent and 1.6 percent. Imports rose 4.1 percent in November, the most since May.

Dirk Rossmann GmbH, Germany’s third-largest drugstore chain, plans to open 110 outlets this year and boost sales by 10 percent. Revenue increased 13 percent in 2010, the Burgwedel, Germany-based company said on Jan. 4.

With governments across the euro area, Germany’s largest export market, cutting spending to rein in budget deficits, companies are tapping demand in faster-growing regions such as Asia. Sales to euro-area countries rose 18 percent in November from a year earlier, while shipments outside the European Union jumped 25 percent, the statistics office said.

Beiersdorf AG, which makes the Nivea range of cosmetics, said on Dec. 15 that investment in China was a “key priority” in 2011.

Domestic ‘Strength’
The trade surplus narrowed to 12.9 billion euros ($16.7 billion) in November from 14.2 billion euros the previous month, today’s report showed. The surplus in the current account, a measure of all trade including services, was 12 billion euros, down from 12.1 billion euros in October.

Volkswagen AG, Europe’s largest carmaker, said on Dec. 9 it will add work shifts at its main plant in Wolfsburg, Germany, in the current quarter to meet surging demand. The company’s labor leaders are calling for a 6 percent pay increase for 100,000 workers, with the first round of talks scheduled for Jan. 19.

“Exports reached their pre-crisis level in November” and “after fulminant growth in the first half of the year, they’ve slowed somewhat as expected,” Economy Minister Rainer Bruederle said in an e-mailed statement today. “The strong increase of imports shows that the German domestic economy continues to gain strength and dynamic.”

To contact the reporters on this story: Jana Randow in Frankfurt at jrandow@bloomberg.net; Jeff Black in Frankfurt at Jblack25@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net