Slowdown beckons as euro zone retail sales drop more than expected

By Jan Strupczewski

BRUSSELS (Reuters) -Euro zone retail gross sales plunged in June and manufacturing facility gate costs continued to rise, knowledge confirmed on Wednesday, including to fears the 19-country single forex zone is heading for recession.

The European Union’s statistics workplace Eurostat stated the quantity of retail gross sales within the 19 nations sharing the euro, already adjusted for inflation, fell 1.2% month-on-month in June for a 3.7% year-on-year decline.

Economists polled by Reuters had anticipated unchanged month-to-month gross sales and solely a 1.7% annual fall.

Individually, euro zone enterprise exercise, measured by the buying managers index (PMI), contracted in July for the primary time since early final 12 months as shoppers reined in spending amid a cost-of-living disaster.

“The impetus to development in H2 2022 appears to be weakening as excessive and broad inflation, energy-saving measures and tightening monetary situations more and more weigh on exercise,” Oxford Economics stated in a word.

“Respondents see nearly a 60% likelihood of the euro zone following the U.S. into technical recession within the subsequent 12 months,” it stated, summing up its newest survey of danger perceptions amongst companies. A technical recession is commonly outlined as two successive quarters of destructive development.

The drop in retail gross sales, a proxy for client demand, comes as producer costs rose 1.1% month-on-month in June for a 35.8% year-on-year surge, Eurostat stated.

As producer costs are a measure of costs of merchandise bought as they depart the producer earlier than taxes, transport and different prices are added on, that rise alerts extra upward strain on client inflation and downward strain on demand.

Whereas the euro zone economic system grew greater than anticipated within the second quarter, economists stated the enlargement may need been a final hurrah earlier than a possible recession within the second half of the 12 months.

“The sharp fall in euro-zone retail gross sales in June means gross sales contracted in Q2 as an entire,” stated Michael Tran, economist at Capital Economics.

“With the ultimate PMI surveys pointing to cost pressures persevering with to accentuate and demand softening, we predict family spending will wrestle over the approaching months,” he stated.

Eurostat knowledge confirmed that power costs in June have been nearly double in comparison with 12 months earlier, however even when they have been excluded, producer costs have been nonetheless 15.6% greater year-on-year — an increase that’s certain to have an effect on shoppers’ buying energy.

The most important drop in retail demand was for non-food merchandise, besides automobile gasoline, particularly through mail orders and web the place they plunged 12.5% year-on-year, Eurostat stated.

Germany, Europe’s largest economic system, confirmed the steepest drop in retail gross sales of 8.8% year-on-year, with the third largest Italy additionally exhibiting a decline of two.8% in annual phrases. Second largest France nonetheless managed a 0.6% year-on-year rise.

(Reporting by Jan Strupczewski; enhancing by Mark John and Toby Chopra)