Europe Retail Sales Fell in August From Year Earlier

By Fergal O'Brien

Oct. 3 (Bloomberg) -- European retail sales declined in August as the economy extended its slump and the global financial crisis intensified, undermining consumer confidence.

Sales fell 1.8 percent in August from a year earlier, matching the pace of decline recorded in July, the European Union's statistics office in Luxembourg said today. From the previous month, sales rose 0.3 percent. A separate report showed services activity contracted for a fourth month in September.

With the outlook for the economy deteriorating and unemployment rising, consumer sentiment is waning even as oil prices decline. As the credit squeeze intensifies, European Central Bank President Jean-Claude Trichet yesterday opened the door to the first interest-rate cut in five years and said ``upside risks to price stability have diminished somewhat.''

``The latest data, together with recent weak industrial- production figures, suggest that euro-zone GDP might well have fallen again in the third quarter,'' said Jennifer McKeown, an economist at Capital Economics in London. ``There is nothing here to prevent ECB interest-rate cuts in the future.''

Europe's economy contracted in the second quarter for the first time in a decade and will probably stagnate for the remainder of this year, according to the European Commission.

French President Nicolas Sarkozy will host a meeting in Paris tomorrow of leaders from Britain, Italy and Germany, as well as Trichet, to prepare a European position on the financial crisis, which forced the U.K. government to seize Bradford & Bingley Plc and prompted state-backed rescues of Fortis and Dexia SA.

Consumer Confidence

An EU index of consumer confidence held at minus 19 in September, close to the 14-year low of minus 20 reached in July. Hennes & Mauritz AB, Europe's second-biggest clothes retailer, this week reported its weakest profit growth since 2003 on slowing demand in German, U.K. and Swedish markets. Gruppo Coin SpA, Italy's largest department-store chain, last month said second-quarter profit fell 75 percent.

A survey of purchasing managers at retailers published this week indicated that the slump in sales continued into last month. The measure of sales in the index fell to 46.2 from 47.7 in August, where a reading below 50 indicates contraction.

Economists had forecast a 2.4 percent decline in annual euro-area retail sales in August, according to the median of 19 estimates in a Bloomberg News survey.

To contact the reporter on this story: Fergal O'Brien in Dublin at fobrien@bloomberg.net.