WIESBADEN: The German economy, Europe's largest, remains on course for its fastest growth in six years despite an unexpected fall in October retail sales, reports the Federal Statistics Office. Sales, adjusted for inflation and seasonal swings, declined 0.2% from September, itself the worst month in over two years.
Nonetheless, companies are still increasing investment and hiring, driving down unemployment to a 30-month low.
But economists warn that growth may shrivel in the first quarter of 2007, as recently-elected chancellor Angela Merkel's newly-imposed sales tax takes effect and weighs on consumer spending.
"It's clear that the economy is going to struggle next year,'' believes Commerzbank economist Matthias Rubisch. "The increase in value-added tax shows growth is at risk. Consumers are far from euphoric about the economy or their wages.''
Data sourced from Bloomberg.com (Germany); additional content by WARC staff