Europe Economy

Euro Zone Retail Sales Fall, Spark Economy Worries


Euro zone retail sales turned out much weaker than expected in February, contracting on the back of falls in Germany and Spain and reinforcing concerns about the outlook for economic growth.

Retail sales, an indication of consumer demand, in the 15 countries using the euro fell 0.5 percent month-on-month for an annual decline of 0.2 percent, the European Union's statistics office said on Thursday.

"The renewed decline in retail sales in February does little for hopes that the consumer will ride to the rescue of the euro zone economy over the coming months," said Howard Archer, economist at Global Insight.

Economists polled by Reuters had expected a 0.2 percent monthly rise and no change year-on-year.

Eurostat revised upwards January retail sales data to growth of 0.5 percent from 0.4 percent month-on-month and an increase of 0.2 percent annually from the previously reported 0.1 percent contraction.

"January's rise in retail sales may have been lifted by increasingly price conscious shoppers across the euro zone looking to take advantage of the New Year sales," Archer said.

Economists pointed to rising inflation, fuelled mainly by food and energy prices, as eating away at consumers' disposable incomes and therefore overall demand.

Willingness to spend is also being curbed by uncertainty about the economic outlook and personal finances, as seen in the latest European Commission surveys, and higher market interest rates that have been boosted by turmoil on financial markets.

"Nevertheless, labour market fundamentals remain strong, with robust employment growth likely to be increasingly supplemented by accelerating wage growth in the coming months," said Nick Kounis, economist at Fortis.

With the U.S.economy likely to slow sharply or even contract in the first half of this year and the strong euro hurting euro zone exports, domestic demand is important to underpin slowing euro zone growth.

"Taking January and February's data together, it looks as though overall consumer spending might fall again in Q1 after a 0.1 percent fall in Q4," said Jennifer McKeown, European economist at Capital Economics.

"With the labour market still in very good health, we doubt that the recent weakness of sales will be sustained," she said.

"While consumer sentiment has fallen lately, it remains at a level consistent with annual sales growth of around 1 percent.

But at the very least, it seems clear that a pick-up in consumer spending is unlikely to offset slowing exports and industrial growth this year," she said.