People walk beneath Christmas lights along Friedrichstrasse shopping street during Christmas season in Berlin, Germany, December 10, 2024. REUTERS/Lisi Niesner

By Maria Martinez

BERLIN (Reuters) -Germany's retail sector expects modest annual growth this holiday season, with sales forecast at 126.2 billion euros ($147.2 billion) for November and December according to retail association HDE. But the mood looks far from festive.

Retailers remain cautious as the economy struggles after two years of stagnation and shoppers are expected to spend less per person than last year.

In its Christmas-period forecasts, HDE said it expected sales for this month and December would be up 2.3% on-year in price-adjusted terms, or 1.5% in nominal terms.

"Despite a difficult environment and many uncertainties, the holiday business remains stable," said HDE president Alexander von Preen.

"However, many retailers view the industry's most important sales period by far with caution or pessimism," he added.

Retailers generate about 18.5% of their annual sales in the last two months of the year, which usually determine how the entire financial year is assessed.

RETAILERS AND CONSUMERS REMAIN CAUTIOUS

An HDE survey of 300 retail companies showed that 80% of companies expect consumers to be restrained in their spending, and 83% expect customers to pay closer attention to prices.

Half of non-food retailers expect a worse or significantly worse Christmas season than last year, in what HDE considers a clear warning sign.

While gift vouchers, toys, and cosmetics remain popular choices, the underlying message is clear: Both businesses and consumers are tightening their belts, hoping stability will eventually return to Europe's largest economy.

A separate HDE survey of 2,000 people showed that each person is expected to spend an average of 263 euros, 34 euros less than the previous year, in another sign of consumers' cautiousness.

($1 = 0.8575 euros)

(Reporting by Maria Martinez, Editing by Miranda Murray and Hugh Lawson)