Euro zone retail sales in record fall

 

Euro zone retail sales dropped by a record 4.2 per cent year-on-year in March, data showed today, underlining the weakness of consumer demand a day before the European Central Bank meets on interest rates.

Retail sales in the 16 countries using the euro also fell 0.6 per cent from February, the European Union's statistics office said, confounding analyst expectations of a small rise.

Economists polled by Reuters had expected a gain of 0.1 per cent month-on-month and a fall of 2.6 per cent year-on-year.

"While there are mounting signs that the rate of euro zone economic contraction is now moderating, the further fall in retail sales in March maintains concerns about the health of the consumer," said Howard Archer, economist at IHS Global Insight.

"Consequently, we expect the ECB to cut interest rates by a further 25 basis points to 1 per cent at Thursday's policy meeting and to deliver on its promise to announce significant 'non-conventional' measures," he said.

Mr Archer said the unconventional steps were most likely to include lending funds to banks at fixed interest rates for longer terms than the current six months.

The ECB wants inflation to be just below 2 per cent over the medium term. Price growth, however, slowed to 0.6 per cent year-on-year in March and April and the bank expects prices to fall for a few months in mid-year.

Economists said the rapid disinflation, which would normally help boost household consumption, was offset by quickly rising unemployment, which in March increased to 8.9 per cent.

"It all suggests that the increase in unemployment and the loss in the consumers' wealth position are likely to be a drag for consumption activity for a while," said Juergen Michels, economist at Citigroup.

"Regarding overall consumption, I think it is very hard to see an improvement before the end of the year," he said.

A monthly survey by the European Commission showed sentiment in the euro zone retail sector deteriorated in April with stock volumes rising, and intentions to place orders falling.

But it also showed selling-price expectations rebounded slightly from all-time lows in March and the outlook for business ahead improved marginally.

Reuters