Retail sales gain offers hope for German domestic demand; minister defends export strength

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German consumer spending shows signs of life

BERLIN — A small rise in retail sales offered a hopeful sign Thursday for Germany’s long-sluggish domestic demand, even as the country’s economy minister mounted a robust defense of its export-heavy recipe for success.

Retail sales were up 0.4 percent on the month in May following declines in March and April, the Federal Statistical Office said in a preliminary report. Still, sales were down 2.4 percent compared with May 2009.

The numbers “are not yet evidence that private consumption has turned the corner, but they are a welcome sign of shopping activity,” said Carsten Brzeski, an economist at ING in Brussels.

Germany has settled into a modest recovery over the past year as a healthier global economy and a decline in the value of the euro have helped its exports — traditionally its main motor. However, domestic demand has long been a weak point.

Brzeski noted that German private consumption has seen three quarters of decline since a popular government car-scrapping bonus program expired last year. Retail sales for the first five months of 2010 were down 1.3 percent on the year.

But he said recent confidence indicators brought “signs of some unexpected support,” and suggested that Germany’s progress at the football World Cup may even help spark spending.

In a speech to parliament, Economy Minister Rainer Bruederle said that “we are an export-oriented economy and we can be proud of that.” Germany can be proud, he added, “that we are the economic locomotive for the whole European Union.”

Germany is the world’s second-biggest exporter after China.

Earlier this year, French Finance Minister Christine Lagarde criticized Germany’s large surplus, arguing that it should increase demand at home to help rebalance wide differences in capital flows across Europe.

Ahead of last weekend’s Group of 20 summit, President Barack Obama wrote a letter that criticized countries too heavily dependent on exports — a barely veiled reference to China and Germany.

Bruederle insisted that the recent rise in German exports is due largely to strong Asian demand.

“These countries produce export surpluses of their own,” he said. “So they are not suffering from Germany’s export strength and from their imports; rather, they are using imports of high-quality German products to be more economically successful.”

Germany’s plan to save euro80 billion ($98 billion) through 2014 also has drawn criticism. Billionaire investor George Soros has warned Berlin’s insistence on fiscal tightening could initiate “a period of prolonged stagnation or worse.”

“There are some who question our successful export model,” Bruederle told lawmakers. “They say, ‘raise wages drastically, carry out more stimulus programs.’”

“That is the wrong way,” he said. “That would be a kind of creeping Greece-ification of German economic policy — we’re not going to do it.”

In another sign of the export-driven recovery, orders for German machinery were up 61 percent on the year in May, the VDMA industry group said.

Orders from inside Germany were up 50 percent, while demand from abroad rose 68 percent, it said — though it noted that May 2009 was “the absolute low point.”

Total orders from March to May, a less volatile yardstick, were up 37 percent.