German retail sales fell unexpectedly in March

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Berlin, Germany's retail sales fell unexpectedly in March due to a value-added tax hike in January, according to data released by the German Federal Statistics Office.

After being adjusted for inflation and seasonal swings, retail sales in March fell 0.7 percent from the previous month, the Federal Statistics Office in Wiesbaden said.

Analysts had expected retail sales in Europe's biggest economy to rise by 0.9 per cent month-on-month in March. However, when compared to March 2006, retail sales were up 0.5 per cent in real terms.

February retail sales growth was revised upwards from 0.9% to 1.0%. Food and related sales rose 0.3% last month, while non-food sales climbed 0.7%.

The data excluded auto sales and revenues of gas stations, and only six German states were covered, which account for 66% of national sales.
 
Economists attributed the surprise fall mainly to consumers' spending reluctance after German government raised value-added tax to 19 percent from 16 percent in January.

Despite January's three-per-cent hike in VAT introduced by Chancellor Angela Merkel's government, economists expect German retail sales to pick up as the year progresses, citing factors including continually falling unemployment and expected higher pay settlements this year after a protracted period of low wage growth.

Indeed, a key survey released last week recorded a surge in German consumer confidence.

The Nuremberg-based GfK market research institute's forward- looking consumer confidence index is set to rise to 5.5 points in May from 4.4 points in April, beating analysts' forecasts.

Based on a survey of about 2,000 responses, the GfK's report showed consumer's expectations in Germany hitting a record high with income expectations as well as consumers' intentions to make big purchases rising.

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