Eurozone Retail in Flux

Following a promising start to 2016’s eurozone sales figures, growth is now slowing and economists were expressing concern – before the Brexit vote results – about the effect on an already choppy global economy.

A promising start before a fall

Eurostat reported a healthy 0.3% rise in January retail sales across the eurozone. This was a pleasant surprise as predictions were closer to 0.1%. A lesser rise of 0.2% in February was attributed to weaker non-food sales as the food sector achieved higher sales than in the previous month. The slowdown carried on into March with a 0.5% drop in retail activity – the most energetic fall since 2014. In April retail sales figures stayed steady at March levels.

Indications of a weak recovery

For some, this paints a worrying picture. Writing for the FT, Eswa Prasad and Karim Foda of the Brookings Institution point to the lack of growth as an illustration that ‘the global economic recovery remains weak, uneven, and in danger of stalling yet again.’ The FT’s economics editor Chris Giles agrees, adding that the fragile economy is due to a combination of ‘sluggish capital investment, falling industrial production and declining business confidence.’

Which categories are struggling?

In particular, there has been a sharp drop in sales of food, drinks and tobacco. In March sales were down 1.3%. Alongside this came significant decreases in automotive fuels and other non-food purchases of 0.4% and 0.5% respectively.

Unemployment is a factor

The headwinds in retail have been linked to the labour market. Since the start of the year unemployment has dropped by only 0.3%, meaning that 10.2% of people across the eurozone remain unemployed. While this may be an improvement on the 11% recorded in April 2015, it is a small one, and unemployment figures are still high enough to affect buying decisions.

Energy prices affecting purchasing power

The fluctuation of energy prices comes into play here: falling energy prices have worked through the system to leave consumers with more disposable income over the past two years – a boon to retail. Recently, however, energy prices have been on the upswing, which could now be having the reverse effect and causing consumers to spend less in other areas.