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Surge in German retail sales raises hopes of V-shaped recovery in the UK

Berlin - Michael Sohn/AP
Berlin - Michael Sohn/AP

German retail sales surged back above their pre-pandemic levels in May as shoppers returned to newly opened stores with a vengeance.

The early success of the eurozone’s largest economy raises hopes that the UK could follow suit with a rapid recovery.

It comes after Andy Haldane, the Bank of England’s chief economist, said promising signs from the re-opening of non-essential retailers meant Britain could see a speedy “V-shaped” rebound.

Retail turnover jumped by 13.9pc in May compared to April, according to official data from Germany’s Federal Statistics Agency, more than overturning the 6.5pc fall in sales during the lockdown.

Compared with May of last year sales are also up 3.8pc in real terms.

It suggests families simply postponed their spending when in lockdown, rather than permanently cutting back.

“Taking advantage of the early re-opening of shops, German consumers opened their wallets like never before in May,” said economist Holger Schmieding at Berenberg Bank.

He predicts a more modest performance in the coming months as pent-up demand for goods is not repeated, and also notes that services companies will not necessarily expect a surge in sales, but rather a return to normal.

“After a catch-up effect in May, German retail sales will likely fall back closer to their underlying trend in June,” he said.

“Some other parts of consumer spending such as travel and tourism, as well as many other services, will likely be weaker. People who had missed physiotherapy in April and May have likely not made up for that by three times as many appointments as usual in June.”

The Ifo Institute believes the German recovery is now well under way. After an estimated collapse of 11.9pc in GDP in the second quarter, it predicts growth of 6.9pc in the coming three months and 3.8pc in the final quarter of the year.

It comes after strong sales were also reported in France.

Consumer goods sales surged by more than one-third, closing most of the gap caused by the lockdown.

Growth from this point depends on customers retaining their confidence in the face of a still ongoing pandemic.

“The May rebound primarily reflects pent-up demand in April, when lockdowns were at their most stringent,” said economist Jacob Nell at Morgan Stanley, noting that different countries across the eurozone are in very different positions.

“We would have to see this trend continue to upgrade our forecast, since we still expect a more cautious consumer and higher savings, given a weaker labour market and the background risk of a resurgence in infections.”

Jonathan Haskel, a monetary policymaker at the Bank of England, said there were signs of a similar pattern in the UK.

"Retail sales and spending more broadly appear to be recovering from their April lows, and we now expect the second quarter as a whole will not be quite as negative as expected," he said.

But he also warned the economy is not out of the woods yet: "There remains a great deal of uncertainty as to how many of the currently furloughed workers will be able to return to their jobs, which in large part will depend on our success as a nation managing and suppressing the virus, and the state of household finances and consumers’ appetite for resumption of discretionary economic activity."

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