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Retail sales drop in euro zone points to modest contraction

RETAIL sales in the 16 countries that use the euro fell in May in a further sign that consumers aren't optimistic enough about their own futures as unemployment keeps rising.

Eurostat, the Europe Union's statistics office, said yesterday that retail sales in the euro zone fell by 0.4 percent in May from the previous month, more than reversing the 0.1 percent increase in April.

On a year-on-year basis, retail sales were down 3.3 percent for the euro zone and 3.1 percent for the 27-nation EU.

Capital Economics' European economist Jennifer McKeown said the retail sales data did provide some indications that the second quarter of the year was better than the first, especially as car registrations figures indicate a pick-up in the auto market.

"May's fall in euro zone retail sales confirms that high street spending remains depressed, but the data still point to a more modest economic contraction in Q2 than in Q1," said McKeown.

She noted that if sales were unchanged in June, then retail sales will have only fallen by 0.4 percent in the second quarter, better than the 0.9 percent decline recorded in the first three months of the year.

A similarly downbeat picture of the services sector, which includes retailing, emerged in a survey from information services company Markit. Though it revised up its purchasing managers index -- a broad gauge of business activity -- for the euro zone services sector for June to 44.7 from the initial estimate of 44.5, the sector remains mired in recession. Any reading below 50 indicates a contraction in output and the bigger the difference from 50 the greater that fall in output.

Rising unemployment

The overall fall in retail spending has come as consumers have tightened their belts amid mounting fears about their own finances as unemployment rises. Figures on Thursday from Eurostat showed that the unemployment rate for the euro zone in May stood at a 10-year high of 9.5 percent, up from April's 9.3 percent.

Rising unemployment is expected in the markets in light of the ongoing fall in output across Europe -- in the first quarter of 2009, the euro zone economy saw output plunge by 2.5 percent as the global recession hit the industrial sector.

The scale of the euro zone recession is bigger than that being experienced in the United States and Britain, for example, partly because of its dependence on exporting goods. Some analysts think that the euro zone economies should rebalance their economies away from this dependence on exports toward consumption.


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