(Recasts; adds PMI, VDMA data)
By Brian Rohan
BERLIN, April 1 (Reuters) - German engineering orders collapsed and retail sales fell in February, highlighting the breadth of the downturn in Europe's largest economy, and Finance Minister Peer Steinbrueck said any recovery would be very slow.
Engineering orders declined by 49 percent on the year, industry association VDMA said on Wednesday, the steepest decline since it began tracking the data in 1958.
"We have a strong downturn now, but at some point, there will only be a very, very slow upturn," Steinbrueck told Stern magazine. "That will take years. If we are lucky, it will start in 2010."
Last week, Steinbrueck abandoned a government estimate for the economy to contract by 2.25 percent this year after a string of independent forecasts were scaled back, with some now pointing to a contraction of up to seven percent in 2009.
Wednesday's retail sales figures also brought downbeat news, as February data fell unexpectedly in a sign consumers are cutting back on spending as unemployment rises.
Retail sales fell by 0.2 percent on the month in seasonally adjusted terms, compared with the 0.2 percent rise expected by economists polled by Reuters.
The drop suggested worries about joblessness were eclipsing slowing inflation as the dominant factor influencing German consumer sentiment, even though inflation eased to nearly a 10-year low in March.
"It now looks as if low inflation, higher disposable incomes and pent-up demand are losing the neck-and-neck race against increasing worries about future job losses," said economist Carsten Brzeski at ING Financial Markets.
Germans' shopping habits are key to the performance of the overall economy, as consumer spending accounts for over half of gross domestic product (GDP).
LITTLE MONEY LEFT
The retail figures, based on data from seven German states accounting for around 76 percent of total turnover, do not include vehicle sales, which have been buoyed by government measures to stimulate the sector with a car-scrapping programme.
On Monday, Germany's HDE retail association blamed the government measure for diverting spending from retail, and gave a grim forecast for the year, saying it expected nominal retail sales to stagnate at best.
Andreas Rees from Unicredit said the data backed up the HDE's position.
"It shows that the scrapping premium (for old cars) has a negative effect on retail sales without cars. Many consumers are trying to make use of the scrapping premium and so they have little money left for other goods," he said.
The impact from global slowdown has hit German companies hard, with some now shedding jobs and contributing to a deterioration in consumer morale that is holding back spending.
Metro, the world's fourth largest retailer and Germany's top listed one, said last week it expected sales growth to slow this year. Last January it said it would cut 15,000 jobs.
Data released by the Labour Office on Tuesday showed Germany suffered its biggest jump in unemployment in March since the outset of the global economic crisis, with the jobless total rising for a fifth straight month.
Rising joblessness has eroded consumer confidence in recent months, and a survey released last week by the GfK market research group forecast morale would drop again in April.
Other data released on Wednesday showed Germany's traditionally export-reliant manufacturing sector continued to suffer from falling demand in March.
A PMI survey of manufacturing purchasing managers showed its headline figure contracting for an eighth month running despite registering a slight improvement from a month earlier. (Additional reporting by Paul Carrel; Editing by David Stamp and Chris Pizzey)