German retail sales posted their strongest gain in seven years in January, reinforcing expectations that consumer spending will support growth in Europe’s largest economy this year.

Data from the Federal Statistics Office today showed retail sales rising 2.5 per cent in both real and nominal terms compared to December, when they stumbled 2.1 per cent lower in real terms during the important Christmas shopping season.

The January rise was the biggest increase since February 2007 and beat forecasts for a gain of 1.0 per cent.

Retail sales data are notoriously volatile and tend to be heavily revised. Economists have also said they are not a good indicator of consumption as Germans appear to be spending their money elsewhere than at traditional retailers.

Despite pointing to mitigating factors, such as the weak December data and a cold weather spell in January leading to the purchase of winter clothes, Christian Schulz of Berenberg said the data bode well for German growth.

"The outlook for consumption in Germany is bright and the January data hint at the potential," Mr Schulz said. "A strong labour market, low inflation and an improving economic outlook give households the confidence and means to spend more."

Separate data today showed wages for workers governed by labour agreements - roughly half the workforce - rose by an average 2.4 per cent year on year in 2013, another signal that the wages could support consumption in a low interest rate environment.

The 2013 rise compared to increases of 2.7 per cent in 2012 and 1.7 per cent in 2011.

That data contrasted with figures from last week showing real wages - including those outside of labour agreements - fell for the first time in four years last year, due partly to a decline in bonuses and one-off payments.

Reuters