Germany's strong domestic economy seen cushioning Brexit fallout

Thu Jun 30, 2016 10:40am EDT
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By Michael Nienaber

BERLIN (Reuters) - German retail sales rose more than expected in May and jobless numbers fell further in June as upbeat consumers and local firms drive growth in Europe's largest economy, where the engineering sector sees no immediate impact from the Brexit vote.

Labour Minister Andrea Nahles said the buoyant labor market provided a solid basis for the economy to cushion any negative impact from Britain's decision to leave the European Union.

"Even if there were a dampening effect, I would say the labor market will remain a crucial anchor of stability also in light of Brexit," Nahles said on Thursday.

Economists have warned that Britain's decision to leave the 28-member bloc is likely to hit German exports and reduce growth by as much as half a percentage point next year.

The International Monetary Fund is likely to lower its growth forecast for the German economy in the coming weeks as a result of Brexit, a senior IMF official said.

Economic data released on Thursday suggested, however, that the German economy can rely on strong domestic demand, cushioning any external shock of Britain's vote to leave the EU.

German retail sales rose 0.9 percent in real terms in May, the strongest monthly increase since July 2015, data from the Federal Statistics Office showed. Economists polled by Reuters had forecast a rise of 0.7 percent.

In the less volatile period from January to May, retail sales jumped by 2.0 percent in real terms.   Continued...

An employee of German car manufacturer Mercedes Benz works on the interior of a GLA model at their production line at the factory in Rastatt, Germany, January 22, 2016.    REUTERS/Kai Pfaffenbach/File Photo