German consumers still have concerns about the future

While demand for exports has increased as global growth picks up, domestic spending still seems to be subdued.

That may not bode well for the "sick man of Europe" as the government tries to kick-start growth, economists said.

Retail sales dropped 1.8% on October, the biggest monthly slide in seven month. The annual rate fell 4.8%.

Vital cuts

Before the end of 2003, Chancellor Gerhard Schroeder pushed through 7.8bn euros (�5.5bn; $10bn) of tax cuts he said were vital if the country was to put recession behind it.

Objections from opposition parties, however, meant that the package was only half the planned amount.

As a result, consumers still seem to be wary of spending, even though they are theoretically better off.

According to a report released at the end of last month by the German retailers' federation, HDE, Christmas sales were down 3-4% on the previous year.

Meanwhile, a survey of 2,000 consumers by market research firm GfK suggested shoppers are no more optimistic about 2004.

More cash?

Mike Bayer, a fund manager at Ceros in Frankfurt, says it may be because most consumers do not believe the tax cuts will lead to more cash at the end of each month.

Most expect the cuts will be offset by an increase in costs elsewhere, Mr Bayer said.

And that scepticism is hitting demand for products across the board.

Sales of food, beverages and tobacco goods dropped 3.7% in November from the same period a year earlier, according to Monday's figures from the Federal Statistics Office.

Non-food items fell by an annual rate of 5.6%, while catalogue sales tumbled 11%, clothing and shoes slid 8.5% and home building materials 3.9% lower.