Euro zone retail sales much stronger than expected in August

[October 03, 2014]  By Jan Strupczewski

BRUSSELS (Reuters) - Euro zone retail sales increased much more than expected in August, data showed on Friday, pointing to stronger demand from households that could help economic growth in the third quarter.

The European Union's statistics office Eurostat said retail sales in the 18 countries sharing the euro rose 1.2 percent month-on-month in August for a 1.9 percent year-on-year gain.

Economists polled by Reuters had expected a 0.1 percent monthly and a 0.5 percent annual rise after sales contracted 0.4 percent month-on-month in July and rose 0.5 percent on the year.

"August's jump in retail sales fuels hopes that consumer spending could make a decent contribution to euro zone GDP growth in the third quarter," said Howard Archer, economist at IHS Global Insight.

"Retail sales volumes were up by 0.6 percent in the three months to August compared to the three months to May. Barring a very sharp correction in September, retail sales volumes look likely to have grown by around 0.7 percent quarter-on-quarter in the third quarter," Archer said.

Although volatile, retail sales data is a proxy for household demand, a central element of the euro zone's economic recovery that stalled in the second quarter.

Eurostat data showed sales of non-food products and fuel at petrol stations contributed most to the monthly rise of the index in August, with the euro zone's biggest economy Germany reporting the biggest gain of 2.5 percent.

"It may be that retail sales were lifted in August by people determined to enjoy their summer holidays after a difficult year. There may also have been a boost to retail sales coming from squeezed consumers looking to make the most of the summer sales in some countries," Archer said.

Economists said that among other reasons for the improvement could be the very low euro zone inflation shoring up purchasing power, and the fact that over the 14 months to August, unemployment in the euro zone declined by 768,000 people.

Economists also point to the strong month-on-month growth in spending in Germany, where unemployment is very low and real wages are good, compared to other countries.

Other economists, however, preferred to point out risks, saying this rebound might not last.

In annual terms, sales of non-food products played an even bigger role as their 3.6 percent year-on-year rise offset a 0.2 percent fall in the sales of food and the same drop in the sales of petrol.

Both Germany and France, the second biggest euro zone economy, recorded hefty gains of 3.1 and 2.1 percent respectively.

(Editing by Mark Heinrich)

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