Eurozone: Retail sales betray economic frailty

Joaquín Almunia, Vice-President of the European Commission in charge of Competition, and Michel Barnier, Member of the EC in charge of Internal Market and Services, gave a press conference on the new rules on Payment Services for the benefit of consumers and retailers. In order to adapt EU payments market to the opportunities of the single market and to support the growth of the EU economy, the European Commission adopted a package including: a new payment Services Directive ("PSD2") and a proposal for regulation on interchange fees for card-based payment transactions. (EC Audiovisual Services 24/7/2013).

Joaquín Almunia, Vice-President of the European Commission in charge of Competition (on the right), and Michel Barnier, Member of the EC in charge of Internal Market and Services, gave a press conference on the new rules on Payment Services for the benefit of consumers and retailers. In order to adapt EU payments market to the opportunities of the single market and to support the growth of the EU economy, the European Commission adopted a package including: a new payment Services Directive (“PSD2”) and a proposal for regulation on interchange fees for card-based payment transactions. (EC Audiovisual Services 24/7/2013).

Retail sales are an infallible measurement of the internal dynamism or its absence in every economy. They are tightly associated with consumption which is by far the largest component of Gross Domestic Product, investments and exports accounting for the rest of it. For quite some time now retail trade dynamism in Eurozone is practically non-existent and its course oscillates around zero. The weak demand in the retailing sector of the economy is also behind the subdue pressures on consumer prices keeping inflation well below the 2% benchmark. In short retail trade dynamism in Eurozone is totally absent.

The latest data from this front are once more on the negative side. According to Eurostat, the EU statistical service, in June 2013 compared with May the volume of retail trade decreased by 0.5% in euro area and by 0.3% in EU27. With this in mind, the widespread opinion powered by some economic analysts, that Eurozone is about to exit from its long recession must be treated with caution. The latest such over-optimistic predictions are based on the announcement by the market analysis group, Sentix, and reported by ‘Investing.com’. Sentix stated that “Investor confidence in the euro zone for August improved to the highest level in six months, amid easing concerns over the outlook for the region’s economy, data showed on Monday”.

Growth out of sight

Still Eurostat insists that “In June 2013, compared with June 2012, the retail sales index dropped by 0.9% in the euro area”. It’s not only that. Eurostat also announced its flash estimate for July inflation. The relevant Press release goes like this, “Euro area annual inflation is expected to be 1.6% in July 2013, stable compared with June”. As every first year student of Economics knows inflation below the 2% benchmark means subdue economic activity.

It’s not by accident that the European Central Bank has set the inflation benchmark for policy action at 2%. Below that level the bank believes economic activity is subdue. Mind you 1.6% is not even close to 2%, it’s rather well below it meaning that Eurozone’s economy is still sleepy. This is exactly what Mario Draghi, the President of ECB, said last week while presenting the new central bank’s philosophy cantered around a very relaxed monetary policy option.

He said, “Underlying price pressures in the euro area are expected to remain subdued over the medium term. In keeping with this picture, monetary and, in particular, credit dynamics remain subdued. Inflation expectations for the euro area continue to be firmly anchored in line with our aim of maintaining inflation rates below, but close to, 2% over the medium term. At the same time, recent confidence indicators based on survey data have shown some further improvement from low levels and tentatively confirm the expectation of a stabilisation in economic activity”.

Beware; Draghi said that data “tentatively confirm the expectation of a stabilisation in economic activity” and he also left to be clearly understood that the ECB wants the inflation rate a bit higher closer to 2%. If the President of ECB knows something more than any economic analyst, then the Eurozone in his mind doesn’t seem quite ready to abandon its long-term recession and achieve a new growth path. Stabilisation is of course the first step to growth but in the case of Eurozone the two stages seem to stand very far apart time-wise. Draghi clearly believes this. That is why he opted for a new policy line.

Monetary stimulus

The new extraordinary measures announced by ECB are meant to revive Eurozone’s economy. If the economy was able to do that by itself the central bank wouldn’t have changed altogether its policy lines. Not to forget that Draghi confirmed last week the ECB will offer unlimited new liquidity to Eurozone’s banks at interest rates very close to zero. Obviously Draghi hopes that some of those freshly printed euro will be lent to the real economy and also to governments and through them be used to bolster consumption and investments.

The banks can’t do it

This is very close to ECB’s undertaking a new strategy nearing the forbidden fiscal policy constellation of measures. If growth was around the corner the ECB wouldn’t have risked to be seen as overshooting its mandate. On top of that most of Eurozone’s commercial banks avoid according new loans and even return to ECB large parts of the liquidity already offered to them so far.

Clearly the inability of the lenders to play their part of the growth game and pass the new money to the real economy is presently the major impediment to Eurozone’s recovery. That’s why the ECB says it will offer even more and cheaper money. The problem is how this new liquidity can reach the points where it is badly needed namely in the south. This is Draghi’s real bet.

 

the sting Milestones

Featured Stings

Can we feed everyone without unleashing disaster? Read on

These campaigners want to give a quarter of the UK back to nature

How to build a more resilient and inclusive global system

Stopping antimicrobial resistance would cost just USD 2 per person a year

Obesity rates soar due to dramatic global diet shift, says UN food agency

Which countries get the most sleep – and how much do we really need?

EU mobilises emergency assistance following floods in Ukraine

Change is happening – and young people are leading the way forward

Women must have an equal share in politics, say MEPs and national MPs

Making the move to more sustainable mobility – three steps for companies

How Europe’s science offers hope in tackling the climate emergency

The EU Commission by serving the banks offers poor support to European mainstream political parties

Creating shared value: an opportunity and challenge for entrepreneurship

May led Britain to chaos, now looks for way out with unpredictable DUP

Why maps matter in our response to COVID-19

A record one million Syrians displaced over six months, during six key battles: UN investigators

American negotiators can’t pay for their trip to Brussels, EU-US trade agreement freezes

We need to protect 30% of the planet by 2030. This is how we can do it

The Commission calls for a climate neutral Europe by 2050*

Negotiations on new EU collective redress rules to begin

How to unleash the enormous power of global healthcare data

EYE to kick off on Friday: 8000+ young people discussing the future of Europe 1 – 2 June

On Kristallnacht anniversary, UN chief urges renewed fight against ‘crime’ of anti-Semitism

At last Britain considers a super-soft Brexit

A Sting Exclusive: “Europe must be more ambitious in COP21 and lead on climate finance and sustainable development”, Green UK MEP Jean Lambert points out from Brussels

UN must bring more women police officers into the fold to be effective – UN peacekeeping official

This simple solution might help with one of the biggest challenges of working from home

Consumer protection: Commission revises EU rules on product safety and consumer credit

Libya’s migrants and refugees with tuberculosis ‘left to die’ in detention centres

How Europe’s green tech ‘scale-ups’ can help tackle climate change

Eurozone’s credibility rock solid

Coronavirus: Commission unveils EU vaccines strategy

#TwitterisblockedinTurkey and so is Erdogan

This is why attractive cities do better economically

Global hunger is on the rise. These simple steps could help eradicate it

UN General Assembly celebrates 20 years of promoting a culture of peace

UN chief seeking ‘renewed commitment’ to global rules and values, as world leaders head to New York

EU founding values: Commission starts legal action against Hungary and Poland for violations of fundamental rights of LGBTIQ people

This wristband tells you what food to buy based on your DNA

Disillusioned young people – France thinks it has a solution

New El Salvador law, a victory for forced displacement victims: UN refugee agency

Look no hands: self-driving vehicles’ public trust problem

GSMA Mobile 360 – Africa: Rise of the Digital Citizen, Kigali 16 – 18 July 2019, in association with The European Sting

Is there a way out of the next financial crisis? Can more printed money or austerity save us all?

Do we really understand the value of independent journalism?

The EU bows to Turkey in view of the talks for a political settlement in Syria

Syria: Why did the US-Russia brokered ceasefire collapse? What does the duo care for?

Coronavirus in Brazil: mental health in tragedy

The technologies – and thoughtful collaborations – that can build resilience in the food system after COVID-19

Union of Equality: European Commission presents Strategy for the Rights of Persons with Disabilities 2021-2030

Politics is failing to protect the Amazon. It’s time for finance to step up instead

To save biodiversity, MEPs call for binding targets at global and EU level

Visa-free access to the EU for UK nationals and to the UK for EU nationals

Teenagers’ career expectations narrowing to limited range of jobs, OECD PISA report finds

The new era of Matriarchy?

EU solidarity in action: Commission proposes €86.7 million for the recent natural disasters in France and Greece

African cities will double in population by 2050. Here are 4 ways to make sure they thrive

How to stay in shape and step up support for refugees

Elections in Britain may reserve a surprise for May’s Tories

19th EU-China Summit: A historical advance in the Chino-European rapprochement

International community urged to deliver on promise for better future for Bosnia and Herzegovina

Grexit no longer a threat but how to manage a “tutti frutti” government if not with fear?

What is blockchain and what can it do?

The world needs a grand coalition to tackle climate change

More Stings?

Speak your Mind Here

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s