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German retailers hurt by tax hikes
FRANKFURT, Germany -- Retail sales in Germany fell in September as consumers in Europe's biggest economy prepare to feel the pinch from a round of tax increases. Store purchases declined by 0.2 percent on an inflation-adjusted basis from August and by 1.3 percent from a year earlier, a preliminary report by the Federal Statistics Office showed on Tuesday. On an unadjusted basis, retail sales fell by 0.2 percent in September from the previous month and by 1.5 percent year-on-year, the office said, based on a survey of five German states. Those states account for 75 percent of the country's retail sales. A separate survey by the Bundesbank showed overall retail sales rose 0.3 percent in September from the previous month, but fell 0.9 percent from a year earlier. The central bank's figures include sales of cars and sales at petrol stations which are not included in Statistics Office surveys. Economists said tax increases -- to be introduced by Chancellor Gerhard Schroeder's coalition government next year -- are the main reason that consumers are tightening their belts. And many expect the impact of those tax increases, including higher pension contributions, will hamper retail sales in the coming months. "Consumption will likely fall back next year as higher pension contributions and other taxes reduce Germans' disposable incomes,'' Gabriele Widmann, an economist at DekaBank, told Reuters. "The reluctance to consume that started in the middle of last year will continue." Retailers feel the pinchWeakening consumer demand has hit many of Germany's retail groups, with the sector facing one of its worst slumps in decades. For example, Metro -- the world's fifth-biggest retailer -- said last week it had trimmed its 2002 sales target as the economy struggles out of recession and unemployment continues to rise. Falling sales and concern over future growth has also had an impact on overall business confidence. The Ifo Institute's monthly index -- based on a survey of 7,000 west German companies -- declined for a fifth straight month in October. Business leaders expressed concern for both current and future economic conditions in Germany as the economy shows few signs of sustained growth, after slipping temporarily into recession in the second half of 2001. Schroeder's left-of-centre coalition plans to introduce tax increases in 2003, along with a series of spending cuts. However, the government says its efforts to spur economic growth are being hampered by the European Union's limit for budget deficits. The Stability and Growth Pact calls for the 12 countries in the eurozone to keep their deficits under three percent of their gross domestic product.
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