By  on August 5, 2014

BRUSSELS,(Reuters) — Euro zone retail sales rose at the fastest rate in seven years in June — and twice as fast as expected — thanks to strong sales of both food and non-food products, data showed on Tuesday.

Compared with the same period last year, the volume of retail sales in the 18 countries sharing the euro surged by 2.4 percent after a downwardly revised 0.6 rise in May, posting its strongest growth since March 2007, data from the EU's statistics office Eurostat showed.

Retail sales, a proxy for household demand, rose in line with expectations by 0.4 percent on the month in June after an upwardly revised 0.3 percent rise in May, data showed.

The annual rise was driven by a 3.0 percent increase in sales of non-food products such as electronics, computers, books or textiles, followed by a 2.0 percent increase in the volume of sales of food, drinks and tobacco.

The fragile recovery of the 9.6 trillion euro economy has so far been mainly export-driven but Europeans, still worried about future job and economic prospects, seem to have started spending more.

The European Central Bank, which is expected to take no action on Thursday in response to a surprise drop in July inflation, saw domestic demand gradually increasing its contribution to the economic growth Europe, which remains weak.

The bloc's two largest economies — Germany and France — both saw retail sales rise at the fastest pace, year-on-year, since February 2011.

Analysts saw modestly improving labour markets in most countries and very low consumer price inflation providing some support to consumer spending over the coming months and help euro zone recovery to gradually gain traction.

"Even so, July's second successive dip in confidence reinforces suspicion that euro zone consumers are generally likely to be pretty careful in their spending for the time being," said Howard Archer, chief European economist at IHS.

While joblessness in the euro zone fell in June to its lowest level since September 2012 and inflation remains in the 'danger zone' of below 1 percent since October last year, consumer confidence deteriorated in July.

Eurostat will publish euro zone GDP growth flash estimate for the second quarter on Aug. 14.

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