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Eurozone retail sales show surprise November drop

By Pan Pylas

Associated Press

Published: Thursday, Jan. 6 2011 3:37 a.m. MST

European Commission President Jose Manuel Barroso addresses the media on growth and economic governance, at the European Commission headquarters in Brussels, Wednesday, Jan. 5, 2011.

Yves Logghe, Associated Press

LONDON — Retail sales in the 16 countries that used the euro in November unexpectedly fell, official figures showed Thursday, in another sign that consumers remain reluctant to spend amid ongoing worries about the level of debt in several countries.

Eurostat, the EU's statistics office, said Thursday that eurozone retail sales fell 0.8 percent in November from the previous month, and revised down its estimate for spending in October. Now it thinks that retail sales were stagnant during the month instead of its previous prediction of 0.5 percent growth.

November's sizable decline was unexpected — the expectation in the markets was that retail sales would rise, albeit by a modest 0.2 percent. It also meant that the year-on-year increase slipped to 0.1 percent in November from the previous month's 1.2 percent.

The failure of consumers to increase spending could be a cause for concern — analysts think consumers will have to take up the slack left by tough government austerity measures, if the recovery in the eurozone is to become self-sustaining.

"A 0.8 percent fall is a disappointment but not altogether surprising given the situation in the region's periphery, where consumer spending is being hit by high unemployment, disappointing economic performance and austerity policies," said Chris Williamson, chief economist at Markit, a financial information company.

Luckily for the eurozone, the industrial sector, particularly in export-strong Germany, is continuing to prosper in a world of rebounding trade volumes.

The industrial recovery was at the heart of a further improvement in a sentiment of economic sentiment conducted by the European Commission.

It said that its main economic sentiment indicator spiked to 106.2 in December from November's 105.1 largely on the back of mounting optimism in France and Germany. The increase was bigger than expected — the market consensus was for the indicator to rise to 105.5 .

Ben May, European economist at Capital Economics, said the Commission figures is pointing to annual economic growth of almost 3 percent during the fourth quarter, way up on the 1.9 percent gain reported for the third quarter.

"In all, then, the near-term growth outlook for the eurozone as a whole remains pretty bright...but the survey underlines the view that the peripheral economies are set for another very tough year," May said.

The euro, which is now used by 17 countries following its adoption by Estonia at the start of the year, was little changed after the data, trading just above $1.31.

On Wednesday, the euro took a battering against the dollar, as did many other currencies, following forecast-busting U.S. jobs data, which have stoked expectations that there is a step-change taking place in the pace of the U.S. economic recovery.

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