Euro zone August retail sales much stronger than expected

Reuters

By Martin Santa

BRUSSELS (Reuters) - Retail sales in the euro zone rose much more than expected in August and were revised up for July as well, in a new sign that households could help sustain the bloc's nascent recovery.

The volume of retail trade in the 17-nation bloc jumped 0.7 percent on the month, helped by demand for fuel, food, clothes and computers, following a revised 0.5 percent increase in July, the EU's statistics office Eurostat said on Thursday.

Economists polled by Reuters expected a 0.2 percent rise in August and the previously reported July rise was 0.1 percent.

Domestic demand in the euro zone has been stifled by record high unemployment and by uncertainty over the future pace of growth after the bloc emerged in the second quarter from the longest recession since the creation of the euro in 1999.

Weak consumer spending is a concern for the European Central Bank, which kept its main interest rate at a record low of 0.50 percent on Wednesday, adding it was closely monitoring risks surrounding the recovery.

The monthly rise in August, the peak of the holiday season, was driven by a 0.9 percent jump in sales of car fuels and a 0.6 percent rise in non-food products, while sales of food, drinks and tobacco fell by 0.4 percent after a 1.2 percent increase in July.

Improving consumer confidence and low inflation bode well for the recovery over the coming months, economists said, but noted that household spending was likely to remain subdued for some time.

"Suspicion remains that consumers will likely remain generally cautious in their spending in the near term at least, thereby limiting the upside for personal expenditure," said Howard Archer, an economist at IHS Global Insight.

In Spain, where unemployment remains at a record high above 25 percent and the government is implementing structural reforms, retail sales accelerated by 3.8 percent in August against July, the strongest rise in a year.

Portugal, heading for an exit next year from an economic adjustment programme signed with international lenders in return for financial aid, saw retail sales surging by 4.8 percent month-on-month, the strongest acceleration since January 2009.

The year-on-year reading for the euro zone showed a much smaller-than-expected 0.3 percent drop for August, following an also downwardly revised 0.7 percent fall in July. Economists polled by Reuters saw a 1.5 percent decline.

Retail sales in Europe's largest economy Germany, now waiting for a new government to be formed after an election victory by Chancellor Angela Merkel's party last month, rose for the first time in three months, showing a 0.5 percent rise.

"The situation varies between countries and German consumers are in a generally decent position to spend with employment at a reunification high and real incomes rising," Archer said.

(Editing by Stephen Nisbet)

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