German consumer confidence up but retail sales slip

Consumer confidence in Germany, Europe's biggest economy, rose again this month, apparently shrugging off fears of a possible resurgence of the euro crisis, even as retail sales slipped, data showed on Tuesday.

The market research company GfK found in its regular monthly consumer climate survey that political gridlock in Italy and the Cyprus crisis have not substantially soured sentiment in Europe's biggest economy so far.

GfK's household confidence index was forecast to rise to 6.2 points in May -- its highest level in nearly six years -- from 6.0 points in April, a statement said.

"The escalation of the debt of the debt crisis in Cyprus does not appear to have had a lasting effect on consumer sentiment, which remains robust," GfK said.

Both income expectations and consumers' willingness to spend are still rising from already high levels.

"It seems that consumers do not feel their own personal economic situation is in jeopardy thanks to stable jobless numbers and pay increases," GfK said.

"On the other hand, they do not appear quite so optimistic with regard to the overall economic development, with economic expectations suffering slight setbacks," it said.

The headline consumer confidence reading is based on responses from about 2,000 households regarding their expectations about pay and the economy as a whole in the coming months, as well as their willingness to spend money.

Other recent confidence indicators -- such as the ZEW investor confidence index and the Ifo business climate index -- have stalled amid concerns that the long-running sovereign debt crisis could flare up again.

At the same time, the federal statistics office Destatis calculated that German retail sales fell by 0.3 percent in March compared with February in price, seasonally and calendar-adjusted terms.

Analysts surveyed by Dow Jones Newswires had expected a drop of around 0.6 percent this month, following a decline of the same magnitude in February.

On a 12-month basis, however, retail sales were down by 2.8 percent in March, but that was partly because there were two fewer shopping days in March this year than in the same month last year, the statisticians noted.

Monthly retail sales data are volatile and subject to frequent revision.

Newedge Strategy analyst Annalisa Piazza saw the retail sales data as a slight correction from the strong gain seen at the start of the year.

"All in all, resilience of the German consumer confidence seems to have been confirmed," even if Germany could not remain immune to the crisis and she saw "downside risks in the coming months," the analyst said.

Carsten Brzeski at ING DiBa said that both the consumer confidence data and the retail sales data showed that German consumers "have become an important, though not strong, growth driver.

"Despite today's drop in retail sales, the overall performance in the first quarter was still stronger than in the last quarter of 2012," the analyst said.

And looking ahead, all ingredients were in place to see a continuation of solid consumption, he argued.

Natixis economist Johannes Gareis was not so optimistic.

"Overall, the massive rise in retail sales in January can not compensate for the subsequent drop in February and March. Retail sales should have dropped in the first quarter by about -1.0 percent, suggesting that private consumption is less buoyant as expected against the backdrop of rising consumer moral and low unemployment rates," he said.