Eurozone retail sales fall shows recession

A European Commission dignitary visites a supermarket in Kraainem, Belgium. (EC Audiovisual Services).

According to Eurostat, the EU’s statistical service, retail trade volume in February compared with January 2013 fell by 0.3% in euro area and remained stable in the EU27. However in comparison with the same month of 2012, the drop in retail sales was much larger. In detail, in February 2013 compared with the same month of 2012, Eurostat’s retail sales index dropped by 1.4% in the euro area and by 0.2% in the EU27. Evidently, the negative long-term tendency of this very important component of demand seems now irreversible.

The fall in retail sales volume is another strong indication that Eurozone is not coming out of its 18 month-long recession, as the €-coin index also shows. In view of that, the prospect of an interest rate cut by the European Central bank becomes even more probable. A reduction in the cost of loans is supposed to help consumer and investment demand to increase pace. But this will be felt some months after the ECB cuts down its basic rate from the present level of 0.75%.

The footprint of crisis

Presumably a reduction of ECB’s basic interest rate, say to 0.5%, that is 25 basis points lower may prove insufficient to create new growth dynamism. To be noted that the ECB changes its interest rates by ‘packages’ of 25 bp. For one thing it is highly questionable if such a small reduction in the cost of money to banks will act as an inducement for lenders to also reduce their own interest rates on consumer and business loans. Apart from that in the Eurozone countries under distress, and there are many of them, their banking systems systematically abate the overall volume of loans accorded to consumers and businesses. Unfortunately there is no indication that this is going to change soon.

Consequently such a small decrease in banks’ refinancing cost does not have the slightest chance to be felt by prospective borrowers. The deep national fragmentation of Eurozone’s financial markets leaves no doubt about this. On top of that, even in euro area countries with no financial market problems, like Germany and France, the overall economic outlook is rather bleak with a strong tendency towards recession, now engulfing them too.

Coming back to the retail sales volume the footprint of crisis is more evident in countries under in difficulties.  On a yearly comparison basis the largest falls were recorded in Greece, Spain, Portugal, and Estonia, and the highest increases in Luxembourg Latvia and the United Kingdom.

On the sectoral level in February 2013, compared with the same month of 2012, retail trade volume of “Food, drinks and tobacco” fell by 1.8% in the euro area and by 1.5% in the EU27. The non-food sector also lost 1.5% of its sales in the euro area and rose by 0.2% in the EU27.