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TOP TREND 2022, DRAGFLATION: GERMANY’S RETAIL SALES CRATER

TOP TREND 2022, DRAGFLATION: GERMANY’S RETAIL SALES CRATER

In June, retail sales in Germany fell by 8.8 percent, year over year, their fastest annual rate of decline since 1994 when records began to be kept, the Financial Times reported.

Inflation ran at a record 8.5 percent for the month, discouraging consumers from making discretionary purchases, especially with energy rationing under way as Russia has slashed its natural gas exports to Germany and the rest of Europe. (See “Germany Rations Power as Russia Cuts Gas Supplies,” 12 Jul 2022.)

Gas rationing and widespread, unchecked inflation will send the continent into a recession this year, many analysts are predicting.

Manufacturing also is “sinking into an increasingly steep downturn, adding to the region’s recession risks,” Chris Williamson, chief business economist at S&P Global Intelligence, told the Financial Times.

S&P Global’s purchasing managers index (PMI) indicates that the country’s manufacturing sector is contracting, with the latest PMI rating falling below 50, indicating the sector has shrunk its output for the first time in two years.

Manufacturing across the rest of the Eurozone also is shrinking, according to S&P Global data.

Also in June, unemployment in the Eurozone rose for the first time in 14 months, the FT reported.

TREND FORECAST: The strength of Germany’s economy is its manufacturing sector. As that sector has been troubled by rising inflation—especially high fuel prices as a result of the Ukraine War and sanctions imposed on its major oil/gas supplier Russia—material shortages and a slowing global economy. 

Simply stated, the higher inflation rises and the more people who lose their jobs as the economy goes down… the weaker consumer consumption and the deeper the recession. 

Germany is now in the grip of Dragflation, our Top 2022 Trend of prices inflating while economic productivity shrinks. And as goes Germany, Europe’s largest economy, so too will go Europe.