Wednesday December 3, 10:35 AM
INSTANT VIEW 4-Euro zone Oct retail sales fall 0.8 pct m/m
Dec 3 (Reuters) - Euro zone retail sales fell much more than
expected in October, underlining weak consumer demand in the
recession-hit economy and adding to arguments for a deep ECB
rate cut on Thursday.
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Table: Story
KEY DATA
EMU-15 OCT SEP AUG JUL JUN MAY
Total retail M/M -0.8 0.0 0.1 0.3 -0.8 0.6
Y/Y -2.1 -1.4 -1.7 -1.5 -3.2 0.3
MARKET REACTION
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ECONOMIST COMMENTS
JENNIFER MCKEOWN, EUROPEAN ECONOMIST, CAPITAL ECONOMICS:
'October's fall in euro zone retail sales shows that
consumer demand remains extremely weak, supporting our view that
the economy will contract more sharply than expected next year.
The 0.8 percent monthly fall in sales volumes was larger than
the consensus forecast for a 0.4 percent decline, although
expectations will have worsened after data earlier this week
showed a sharp drop in German sales.
'Sales are now falling at a rate of 2.1 percent y/y. The one
consolation is that sales values growth has held up well lately,
implying that sales volumes could recover as inflation falls.
But the low level of consumer confidence suggests that any
recovery will be modest.
'For now, the data point to another fall in consumer
spending in Q4. Indeed, after this morning's downward revision,
the composite PMI index so far points to a sharp quarterly fall
in GDP of up to 0.7 percent. We continue to expect a 50bp
interest rate cut from the ECB tomorrow, although a bigger move
is certainly possible. Either way, we still see rates falling to
a record low of 1.5 percent in the first half of next year.'
HOWARD ARCHER, CHIEF EUROPEAN ECONOMIST, IHS GLOBAL INSIGHT:
'Euro zone retail sales volumes plunged by a worrying 0.8
percent month-on-month and 2.1 percent year-on-year in October,
thereby heightening concerns that the euro zone recession is
deepening. Indeed, the prospects for consumer spending look
pretty bleak.
'While sharply retreating inflation will increasingly
support purchasing power, this will be increasingly countered by
rising unemployment across the euro zone and growing job
insecurity. Furthermore, very tight credit conditions and
elevated consumer concerns over the current economic situation
and the outlook bode ill for consumption.
'Indeed, euro zone consumer confidence deteriorated further
to a near 15-year low in November, as fears about unemployment
soared. Purchasing intentions were at survey low levels.
'Falling retail sales in October, following on from an
extremely weak purchasing managers service sector survey for
November, reinforce concerns over the potential length and depth
of the euro zone recession. This puts extra late pressure on the
ECB to cut interest rates sharply.
'We believe there is a compelling case for the ECB to slash
interest rates by 100 basis points from 3.25 percent to 2.25
percent on Thursday. However, we suspect it will be reluctant to
do so, particularly as some ECB members have indicated recently
that they believe it is best to keep some ammunition back and
have also voiced concern that too big a cut could hurt
confidence.
'Therefore, we consider it most likely that the ECB will cut
interest rates by 50 basis points to 2.75 percent, although we
certainly would not rule out a larger cut. Further out, we see
the ECB cutting interest rates to 1.50 percent in the first half
of 2009.'
HOLGER SCHMIEDING, BANK OF AMERICA (NYSE: IKJ - news) :
'Once again, these data were on the worst side of consensus,
but no real surprise in that. Retail sales in the euro zone have
been trending down since roughly 2007 and now the October data
seem to suggest the downturn is getting worse.
'It means another argument, if another one is needed, for
the ECB to cut aggressively. We think they will do 75 basis
points. We think they are sensible people.'
LINKS
For further details, Reuters 3000 Xtra users can click on:
http://europa.eu.int/comm/eurostat/
For a one-page snapshot of real-time G7, euro zone and Swiss
economic data releases, click on
Keywords: EUROZONE ECONOMY/RETAIL
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