Business | Economy
Euro zone reports strong retail sales
Euro zone retail sales turned out stronger than expected in August and July sales were revised upwards, pointing to some resilience in private demand but no change in the trend of slowing economic growth.
- Reuters
- Published: 23:41 October 3, 2008
Brussels: Euro zone retail sales turned out stronger than expected in August and July sales were revised upwards, pointing to some resilience in private demand but no change in the trend of slowing economic growth.
Retail sales, an indication of household demand, rose 0.3 per cent in August against July in the 15 countries using the euro, the Eurostat European Union statistics office said yesterday. They declined 1.8 per cent year-on-year.
Economists polled by Reuters had expected only a 0.1 per cent monthly rise and a 2.4 per cent annual fall.
A decline in private consumption was one of the main reasons for a contraction of the euro zone economy in the second quarter and economists expect euro zone gross domestic product may have fallen again in the third quarter.
"The figures slightly increase the chance that the economy will escape a technical recession in the third quarter, but it is still touch and go," said Nick Kounis, chief European economist at Fortis.
Cautious approach
Other economists were more downbeat.
"August's modest rise in euro zone retail sales does nothing to change the picture of weakness in the consumer sector," said Jennifer McKeown, economist at Capital Economics.
"For now, though, the figures, together with recent weak industrial production data and business surveys, add to the risk that GDP fell again in the third quarter, implying that the region is in a technical recession. In all, there is nothing here to prevent ECB rate cuts in the near future," she said.
Eurostat also revised up its retail sales data for July to a monthly gain of 0.1 per cent from a fall of 0.4 per cent and a year-on-year decline of 1.8 per cent from a fall of 2.8 per cent.
"Despite the modest pick-up in retail sales in August, the prospects for consumer spending across the euro zone still look far from encouraging. Consumers' purchasing power is currently still being squeezed markedly by elevated energy and food prices," said Howard Archer, economist at Global Insight.
Inflation
Inflation in the euro zone hit a record 4.0 per cent year-on-year in July, but fell to 3.8 per cent in August and 3.6 per cent in September.
"While euro zone inflation is expected to fall back significantly further over the coming months ... this seems certain to be countered by increasingly rising unemployment across the euro zone," Archer said.
"Furthermore, very tight credit conditions and elevated consumer concerns over the economic outlook and heightened financial sector turmoil do not bode well for consumption," he said.
The European Central Bank, which wants inflation to be just below two per cent, left interest rates unchanged at its meeting on Thursday, but econo-mists believe it signalled a rate cut was possible in November amid deepening financial turmoil.
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