Euro zone Feb retail sales unexpectedly contract

Retail sales in the 15 countries using the euro, an indication of consumer demand, fell 0.5% month-on-month for an annual decline of 0.2%, the European Union’s statistics office said. Economists polled by Reuters had expected a 0.2% monthly rise and no change year-on-year. Eurostat revised upwards January retail sales data to growth of 0.5% from 0.4% month-on-month and an increase of 0.2% annually from the previously reported 0.1% contraction. Economists have pointed to rising inflation, fuelled mainly by food and energy prices, as eating away at consumers’ disposable incomes and therefore overall demand.

Willingness to spend is also curbed by uncertainty about the economic outlook and personal finances, as seen in the latest European Commission surveys, and higher market interest rates. On the other hand, record low unemployment and ongoing wage negotiations that are likely to lead to higher salaries should help underpin consumer demand in 2008. With the US economy likely to slow sharply or even contract in the first half of this year and the strong euro hurting euro zone exports, domestic demand is important for fuelling economic growth, which is seen slowing this year. (Reuters)