Euro-Region Retail Sales Unexpectedly Fell in December: Economy

Euro-Region Retail Sales Unexpectedly Decline
Customers pass a Gucci store inside the Le Printemps department store in Paris. Photographer: Fabrice Dimier/Bloomberg

European retail sales unexpectedly declined in December, led by Germany and France, as unemployment at a 14-year high and government spending cuts sapped consumer demand.

Sales dropped 0.4 percent in the month after a similar decrease in November, the European Union’s statistics office in Luxembourg said today. Economists had forecast a gain of 0.3 percent, the median of 16 estimates in a Bloomberg News survey showed. Sales slipped 1.6 percent from a year earlier.

European households may cut spending as governments step up austerity measures to contain the region’s fiscal crisis just as companies start to eliminate jobs. Euro-region unemployment held at 10.4 percent in December, the highest in almost 14 years, suggesting the region’s worsening debt crisis and cooling economic growth have prompted companies to cut jobs.

“The decline in euro-area December retail sales confirms our view that private consumption is likely to have fallen in the fourth quarter, contributing to a contraction in euro-area gross domestic product of 0.3 percent quarter on quarter,” James Ashley, senior European economist at RBC Capital Markets in London, said by e-mail.

The euro was little changed after the data were released, trading at $1.3172 at 12:41 p.m. in Brussels, up 0.2 percent.

‘Partial Relief’

German retail sales fell 1.4 percent from November, when they dropped 1 percent, today’s report showed. Sales in France and Spain declined 0.3 percent and 0.8 percent, respectively.

“Some partial relief is likely in the next few months as inflation moderates over the course of the first half, thereby supporting real household incomes,” Ashley said. “But even allowing for that, we do not expect to see any strong resurgence in private consumption in the short-term.”

In contrast to Europe’s gloomy retail outlook, services and factory output in the euro area strengthened in January, led by growth in Germany and France.

A composite index based on a survey of purchasing managers in both industries rose to 50.4 from 48.3 in December, London-based Markit Economics said in a report today. A reading above 50 indicates expansion.

Italy’s inflation rate fell in January as post-holiday sales more than offset tax increases in Prime Minister Mario Monti’s austerity package.

AAA Countries

Finance ministers of the AAA rated countries using the euro -- Germany, Luxembourg, the Netherlands and Finland -- are set to meet today in Berlin as European leaders try to end the crisis. With the turmoil undermining the recovery and global export demand cooling, European Central Bank council member Ewald Nowotny said on Jan. 30 the euro-area economy may fail to grow or show a “recession in certain phases” of this year.

The ECB, which has forecast inflation to slow this year, will hold its next rate assessment on Feb. 9. The central bank has cut its interest rates twice over the past three months, bringing the benchmark to 1 percent, matching a record low.

While European unemployment remains high, employers in the U.S. probably increased payrolls in January, a sign companies are gaining confidence the country’s expansion will weather Europe’s slump, economists said before a report today.

Employment grew by 140,000 after rising by 200,000 in December, according to the median forecast of 89 economists surveyed by Bloomberg News. The jobless rate may have held at an almost three-year low of 8.5 percent. Another report may show service industries expanded at a faster pace last month.

‘Respectable Pace’

“The labor market continues to churn out new jobs at a respectable pace,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “We aren’t back to normal yet, but we are on our way.”

In Asia, Reserve Bank of India Deputy Governor Subir Gokarn said the monetary authority will cut interest rates once it’s confident inflation will keep slowing.

“The stance now is that we have reached the peak and any further action will be toward easing,” Gokarn said in an interview. The central bank isn’t concerned about the currency’s record monthly advance in January “because in a sense it’s a correction,” following last year’s 16 percent decline, he said.

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