Euro zone sales disappoint, prospects poor

BRUSSELS Wed Apr 4, 2012 6:28am EDT

BRUSSELS (Reuters) - Shoppers in the euro zone cut back on their spending in February as households faced stubborn inflation, growing unemployment lines and pay freezes across the public and private sector.

Retail sales in the 17 countries using the euro fell 0.1 percent month on month, Eurostat said on Wednesday. Economists polled by Reuters had expected sales volumes to be unchanged.

In an indication that household demand will do little to revive the subdued euro zone economy as it heads into recession this year, retail sales were down 2.1 percent on an annual basis. That compared with a forecast of a 0.9 percent fall.

"We are dealing with incredible fiscal austerity here, so we expect further contractions in retail sales," said Julian Callow, an economist at Barclays Capital in London.

Consumers surprised economists in January by increasing their spending after four months of falls, but in February cautious shoppers, particularly in Germany, appeared to lose confidence.

"Consumers across the euro zone remain reluctant to spend," said Howard Archer at IHS Global Insight. "January's rise in sales was due significantly to pressured consumers looking to take advantage of the clearance sales," he said.

In Germany, February sales fell 1.1 percent on the back of a fall the previous month, although volumes rose 1.2 percent in France, the bloc's other economic motor.

An unprecedented cash injection to banks by the European Central Bank helped to calm panicky financial markets at the start of this year and some early indicators suggested the euro zone's economy could be stabilising after 2011's collapse in business confidence.

But the region that generates about 16 percent of the world's economic output is still struggling to put its two-year debt saga behind it. Euro zone manufacturing activity contracted in March while oil prices are keeping inflation relatively high at 2.6 percent despite sluggish consumption. Unemployment is at almost 11 percent of the working population.

The ECB is expected to hold interest rates at a record low of 1 percent on Wednesday, judging that renewed concern about southern Europe's economic health make it difficult to raise rates to contain energy price pressures.

"The prospects for overall consumer spending in the euro zone look worrying in the near term at least," Archer said. "Although consumer confidence rose to a seven-month high in March, it is still low compared to long-term norms."

(Reporting by Robin Emmott; Editing by Ben Harding)

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