RTTNews - German retail sales dropped unexpectedly in June despite rising consumer confidence and low price level as recession continued to put pressure on consumer spending.

According to a provisional report from the Federal Statistical Office, retail sales for June recorded a surprise monthly decrease of 1.8% in real terms, following a revised 1.3% drop in May. Economists were looking for a 0.3% rise.

Year-on-year, sales slipped 1.6% in June, smaller than a revised 3.7% fall seen in May. The annual decline was also unexpected as economists were looking for an increase of 0.9%.

For the January to June period, retail turnover dropped 2.1% in real terms compared to the corresponding period of the previous year. Sales were down nominally by 2.3%.

In nominal terms, retail sales dipped 2% year-on-year and 1.6% from the prior month in June.

Simon Junker, Commerzbank analyst said in a note that German retail sales proved to be stable despite severe recession, probably because of the still stable labor market and the low price level. The crisis has reached retail too, supporting the judgment that the largest Eurozone economy shrunk again in the second quarter, albeit only moderately, he said.

According to the analyst, the German economy would possibly pick up in the months ahead, though retail may not benefit very much in the coming months. At most, the favorable price trend could strengthen purchasing power and support sales. However, rising unemployment would dent retail sales again.

German unemployment decreased in July, which was the first decline since October 2008. Meanwhile, the jobless rate stood at 8.3%, unchanged from June.

Consumer confidence and business climate in the economy showed improvements in recent months as a result of Chancellor Angela Merkel's spending plan. Merkel is seeking a second-term in office in September elections.

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