Euro zone retail sales unexpectedly increased in monthly terms in November, data showed today, but prospects for the recession-hit economy remained bleak amid plunging business morale and growing unemployment.
The 0.6 per cent upswing in demand at retailers left sales 1.5 per cent lower than in November 2007, the sixth straight yearly drop, reinforcing expectations that the European Central Bank will cut interest rates next week.
"It's way too early to talk about signs of a turnaround with unemployment only recently literally surging higher. The outlook is both bleak for the production and household sides," said Matthew Sharrat, analyst at Bank of America.
Economists polled by Reuters had expected November retail trade to be flat month-on-month among the 15 nations that then shared the euro and down 1.6 per cent on the year. Slovakia became the area's 16th member in January.
European Union statistics office Eurostat also revised down its October data to a 1 percent fall on a monthly basis and a 2.3 per cent decrease annually, compared with previous readings of -0.8 per cent and -2.1 per cent.
Retail sales are an indication of household demand. Falling private consumption was one of the reasons for a shrinkage in the euro zone economy in the second and third quarters.
Economists expect a deeper recession for the fourth quarter of 2008 and the first three months of this year, and expect the European Central Bank to cut interest rates next week following a fall in inflation to well below the bank's target.
Economists had put some of the blame for weakening household demand on high inflation, which peaked at 4 per cent in July. Inflation fell to 1.6 per cent in December with a drop in oil costs, compared with the ECB's target of just below 2 per cent.
"Overall, we think that the euro zone recession will be characterised by corporate retrenchment rather than consumer retrenchment," said Nick Kounis, chief European economist at Fortis Bank.
Many analysts expect the bank to cut interest rates by 50 basis points to 2 per cent to help kick-start the economy, in which sentiment indicators fell to all-time lows in December as unemployment crept up.
Reuters