BERLIN, Dec 30: Germany's retail sector expects turnover to decline in 2007 because of an increase in the value-added tax, a spokesman for the HDE retail industry association said on Saturday. In 2007 we'll experience the reverse side of the coin,” HDE spokesman Hubertus Pellengahr told the Tagesspiegel daily, referring to strong demand at the end of 2006 ahead of the 3-point rise in the VAT to 19 per cent from January 1.

Pellengahr said the HDE was bracing for a “strong setback” in the first quarter but hoped it would be only temporary.

We're hopeful things will improve after that, he said.

He said the sector was expecting retail sales to decline by up to one per cent in 2007 in real terms even though in nominal terms they will rise by between 0.5 and 1 per cent.

Other new burdens on consumers, such as increases in insurance taxes and health insurance premiums, could wipe out some 24bn euros ($32 billion) in disposable income in 2007, a consumers group predicted recently.

Germany's gross domestic product (GDP) is expected to grow by about 2.5 to 2.75pc in 2006, its strongest expansion since 2000, while forecasts for 2007 are being revised upwards to around 2pc from earlier targets of just over 1 per cent.

—Reuters