UPDATE 1-Spain retail sales fall sharply in October

Wed Nov 28, 2012 4:26am EST

* Retail sales fall 9.7 pct y/y in October

* VAT rise in September hitting already weak sentiment (Adds details, comment)

MADRID Nov 28 (Reuters) - Spanish retail sales fell sharply in October as demand was hit by a rise in value-added tax that tore into already weak consumer sentiment.

It pointed to a continued sharp economic contraction in the fourth quarter of the year.

Official data showed retail sales fell by 9.7 percent year-on-year on a calendar-adjusted basis in October after a revised fall of 11.0 percent in September. The consensus forecast for October was for a fall of 11.5 percent.

Last month was the steepest drop on record. September data was revised down marginally from a fall of 10.9 percent, which was the biggest fall on record.

Spain fell back into recession in the last quarter of 2011, and the economy is not expected to grow again until late in 2013. Weak growth prospects have kept the country at the forefront of the euro zone crisis as it battles to rein in its public deficit despite falling revenues as a recession deepens.

The Bank of Spain on Wednesday said it expected the VAT hike to have a negative effect on economic activity in the fourth quarter of the year following better than expected numbers in the third quarter.

Value-added tax rose to 21 percent, up three percentage points, at the end of summer.

"The information available points to a continued fall in output in the final months of 2012, when there will be a reverse in the effect of the anticipated spending that was brought about by the VAT hike in September," the central bank said in its monthly report.

The data from the National Statistics Institute for October marked the 28th month in a row of falling retail sales data.

Retail sales data have been hit sharply from September at

"Plummeting retail sales in both September and October suggest the economy will pay a heavy price in the next few quarters, with consumer spending indicators exhibiting depression-like characteristics," said Raj Badiani, analyst at IHS Global Insight. (Reporting by Nigel Davies; Editing by Julien Toyer)

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