Retail sales in the euro currency area fell more than expected in February, data showed, signalling weak domestic demand and the fragility of economic recovery as the European Central Bank meets on interest rates.
Sales in the 16-country zone dropped 0.6 per cent against January and decreased 1.1 per cent year-on-year, European Union statistics office Eurostat said today.
"The general message is that consumption remains key for this year and if we need a more self-sustainable recovery in the euro zone, we will need somewhat stronger growth in consumption," said Carsten Brzeski, economist at ING.
Household confidence is fragile as unemployment in February hit 10 per cent, its highest since August 1998. The euro zone economy stagnated in the last quarter of 2009, data showed this week.
"High and still rising unemployment across the euro zone, likely muted wage growth over the coming months and the ending of car scrappage schemes will likely limit the upside for consumer spending," said Howard Archer, economist at IHS Global Insight.
Swedish fashion chain Hennes and Mauritz, the world's third-largest clothing retailer with operations throughout Europe, said economic conditions had stayed weak in the first quarter but a strong start to the second suggested improvement.
H& M same-store sales, which started rising in December after a seven-month losing streak, dipped 1 per cent in February compared to a year earlier but rose 9 per cent in March. For the quarter, same-store sales gained 2 per cent year-on-year.
Eurostat revised up its retail sales figures for January to -0.2 per cent month-on-month and -0.6 per cent annually from a previous reading of -0.3 per cent and -1.3 per cent.
With consumer demand weak, inflationary pressures are likely to remain low, economists said, forecasting the ECB would leave its main refinancing rate at a record low of 1.0 per cent until late in 2010 or 2011.
Retail trade in February was pushed down by a 1.6 per cent month-on-month drop in sales of food, drinks and tobacco. Sales of non-food products increased 0.2 per cent.
In Germany, the euro zone's biggest economy, sales dropped 0.4 per cent on the month in February while in France, the second biggest, they increased 0.6 per cent.
In the 27-nation European Union, retail sales remained unchanged on the month and dropped 0.7 per cent year-on-year. They were supported by strong figures from Britain, where sales increased 2.2 per cent from January and 2.8 per cent annually.
Reuters