Analysts warn on outlook as Eurozone retail sales fall unexpectedly

(Alliance News) - Retail sales edged up less than the markets had expected, according to official data on Monday, as analysts warned that this data could have a negative impact elsewhere.

Eurostat said eurozone retail trade volumes rose 0.3% in January from December, having fallen by 1.7% in December from November.

This was behind market consensus for a 1.0% month-on-month rise in January, as cited by FXStreet.

Oxford Economics said that the month-on-month jump was only a "small expansion." It added: "While positive, the growth wasn't nearly enough to offset the 1.7% plunge seen in December 2022."

Oxford Economics continued: "Today's reading confirms the subdued momentum in consumer spending, bolstered by the weak carry over from Q4 2022 and corroborates our expectations of a decline in private consumption in Q1 overall. The data also runs in direct contradiction to the sustained improvement in consumer confidence seen in recent month, giving credence to our view that sentiment indicators have become decoupled from real activity and offer only a limited guidance at present."

ING said that the small increase in retail sales suggests a "weak start to the year for the consumer amid stubbornly high prices." It added that the results do not suggest that a rebound has started. ING expects gross domestic product growth in the first quarter to be flat.

However, ING noted: "For the consumer, the positive thing is that the inflation peak is behind us, wages are improving, and the economy has not dipped into a material recession, which supports the outlook for employment. This has helped confidence to improve a little, but with purchasing power still being squeezed, it does not seem like there is a lot of momentum for a quick bounce back in 2023."

Eurostat explained that the volume of retail trade increased by 1.8% for food, drinks and tobacco and by 0.8% for non-food products, while it decreased by 1.5% for automotive fuels.

Compared to January of 2022, retail sales were 2.3% lower. The decline slowed slightly from the annual fall of 2.8% seen in December. However, the result was well behind market consensus, which had expected growth of 1.9%.

"The volume of retail trade decreased by 5.0% for food, drinks and tobacco and by 1.0% for non-food products, while it grew by 5.4% for automotive fuels," the statistical body said.

Oxford Economics said: "There was some divergence in the retail sales breakdown."

"Both food and non-food goods sales improved on the month by 1.8% and 0.8% month-on-month respectively, although this wasn't enough to fully recoup December losses in either case. In contrast, fuel sales recorded a 1.5% month-on-month decline," it explained.

Oxford Economics added that on the whole retail sales are just 2% above the pre-pandemic levels.

"A perfect storm of elevated inflation, falling real incomes and rising interest rates is weighing on consumer spending. And with core inflation proving stickier with an increase in February and food prices also continuing to rise, this is likely to dampen retail sales in the coming months. Overall, eurozone households are now consuming essentially the same amount of retail goods compared to before the pandemic but paying over 16% more," it concluded.

On the other hand, Shore Capital said: "The improvement can be attributed to stability in manufacturing production, improved service output and high client demand." It added that business optimism in the Eurozone "remained high" as job creation was sustained in February.

By Sophie Rose, Alliance News reporter

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