Eurozone retail sales drop for third month in a row - ING

Bert Colijn, Senior Economist at ING, suggests that not all that glitters is gold as strong Eurozone economic surveys mask weak performance in retail at the start of the year while the outlook for domestic demand does remain positive though, even under higher inflation rates.

Key Quotes

“While surveys about the Eurozone economy in 2017 have been very upbeat so far, retail sales disappointed in January. The 0.1% MoM decline is the third in a row, while YoY growth is just 1.2%. This suggests that recent Eurozone optimism is not translating into more shopping at the moment. One factor probably influencing this is the rebound of inflation in recent months, bringing price growth back to 2% in the Eurozone. Nominal wage growth has been below 2% since 2013, indicating that real wages are suffering from the recent rebound in prices.”

“Retailers confirmed the current weakness in demand in the Economic Sentiment Indicator as the February survey showed a strong decline in the assessment of the present business situation. Even though recent months have disappointed, retailers do remain optimistic about business in the months ahead. This probably makes sense, given the strength in the job market and relative optimism among consumers. Today’s composite PMI numbers confirm that strength in the economy. Still though, this could be a sign for Eurozone growth that domestic demand could be impacted by declining real wages, although we expect consumer spending to remain robust in Q1.”