Eurozone: Stronger than expected retail sale numbers - ING

Peter Vanden Houte, Chief Economist at ING, notes that the Eurozone retail sales performed much better than expected in July, be we doubt that this trend will continue

Key Quotes

“Eurozone retail increased by 1.1% MoM in July, after having shrunk by 0.1% (revised from 0.0%) in June. This was markedly better than expected, as the consensus had only penciled in a 0.6% expansion. Luxembourg (+2.3%), Portugal (+1.8%) and Germany (+1.7%) saw the biggest increases, while Ireland recorded a 0.3% fall.

Even if consumer confidence fell in July, lower oil prices clearly boosted purchasing power, leading to stronger retail sales. However, with energy prices haven moved higher again last month and taking into account the further drop in consumer confidence, it seems quite unlikely that retail sales growth will further accelerate in the short run.

Three consecutive drops in consumer confidence could be signal that the European consumer is down, but according to today’s figures he is definitely not out. With unemployment further decreasing, consumption is still likely to contribute to GDP growth, albeit somewhat less than before as the bonus from a falling oil price is petering out and Brexit has injected some uncertainty into the economic outlook.

To be sure, consumer expenditure started the third quarter on a strong footing, but we still expect the expansion to lose some steam in the second half of the year, with quarter-on-quarter GDP growth hovering around 0.2%. While the recent soft inflation figures might increase the pressure on the ECB to do more, we think that figures like today’s retail sales will keep the ECB in wait-and-see mode for the next few months.”