Retail sales in eurozone unexpectedly drop 0.4 pct in August, suggesting fragile confidence

By Pan Pylas, AP
Tuesday, October 5, 2010

Eurozone retail sales unexpectedly fall in August

LONDON — Retail sales in the 16 countries that use the euro unexpectedly fell during August, official figures showed Tuesday, in another sign that consumer confidence remains fragile despite a stronger than anticipated economic recovery.

Eurostat, the EU’s statistics office, said eurozone retail sales dropped by 0.4 percent in August from the previous month, in contrast to market expectations for a 0.2 percent increase. August’s decline was the first since April, though the monthly increases since then have been small.

As a result, the year-on-year rise in retail sales eased to 0.6 percent from July’s 1.1 percent rate.

Analysts say that the eurozone’s economic recovery can only be sustainable if consumers start to spend more, especially as the U.S. economy has lost momentum.

A large chunk of the 1 percent growth recorded by the eurozone in the second quarter was dependent on a big industrial recovery in Germany as stocks were replenished and global trade picked up.

“August’s fall in eurozone retail sales confirms that households are not picking up the slack left by slowing exports,” said Jennifer McKeown, senior European economist at Capital Economics.

There are few hopes that the consumer will step up to the plate anytime soon, given that the eurozone unemployment rate remains above 10 percent and a number of governments are preparing and enacting tough austerity measures to get public finances back into shape. Recent consumption figures from the likes of Ireland and Greece — two countries in the midst of big spending cuts and tax rises — don’t leave much cause for hope for the near-term.

One hope is that Germany may start to punch its weight in terms of consumer spending, given that unemployment has fallen appreciably over the last few months and workers are winning wage increases.

“The problem is though that in recent years German consumers have always seemed to find some reason not to significantly step up their spending,” said Howard Archer, chief European economist at IHS Global Insight.

For the wider 27-country EU, which includes non-euro members such as Britain and Sweden, Eurostat said retail sales fell a monthly 0.3 percent in August, which dragged the annual rate of increase down to 0.8 percent from 1.1 percent.

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