Europe Retail Sales Drop More Than Expected as Confidence Wanes

By Jurjen van de Pol

Feb. 4 (Bloomberg) -- European retail sales declined more than economists expected in December as consumer confidence sank in the face of the worst recession since World War II.

Sales in the euro region fell 1.6 percent from a year earlier after a revised 2.6 percent decline in November, the European Union’s statistics office in Luxembourg said today. The December drop, the seventh straight decline, was sharper than the 1.4 percent fall economists forecast, according to the median of 13 estimates in a Bloomberg survey. From the previous month, sales were unchanged in the latest month.

European consumers are cutting back on spending as higher unemployment and tighter credit conditions erode confidence in the economic outlook. Consumer sentiment fell to a record low in January and inflation eased to the slowest since 1999, adding to arguments for the European Central Bank to cut interest rates further to bolster the economy.

“Consumers are clearly benefiting from the falling back in inflation, but that’s being increasingly countered by the rising unemployment and the concerns about the economic outlook,” said Howard Archer, chief European economist at IHS Global Insight in London. “That’s going to weigh down very heavily on consumer spending” this year.

The International Monetary Fund last week cut its forecast for the euro-zone economy to predict a contraction of 2 percent this year. It previously projected the economy would shrink 0.5 percent in 2009. Europe’s services industries contracted for an eighth straight month in January, data today showed.

Largest Economy

Euro-area retail sales were unchanged in December from the prior month, today’s report showed, after a 0.1 percent drop in November. Sales in Germany, Europe’s largest economy, unexpectedly fell for a third month in December after unemployment rose, the Federal Statistics Office in Wiesbaden said yesterday.

Metro AG, Germany’s largest retailer, on Jan. 13 reported slowing sales growth and said fourth-quarter profit missed its forecast as consumer spending weakened. Metro intends to cut 15,000 jobs as part of a plan to increase profit.

“Economic indicators do not bode well for food retailers,” analysts John David Roeg and Peter Brockwell at ING Wholesale Banking said in a note to investors yesterday. “We favor more defensive groups, such as Ahold and Sainsbury, over more cyclical ones, such as Carrefour and Metro.”

Hawesko Holding AG, Germany’s biggest wine seller, last week said fourth-quarter profit fell 1.5 percent as sales of Bordeaux declined at its French unit. This year will be “more difficult,” particularly in the first half, Chief Executive Officer Alexander Margaritoff said.

Shop owners across Europe missed their revenue targets in January and expect to do so again in February as consumers hold off on purchases of goods such as clothing and shoes, the Bloomberg January purchasing managers index showed last week.

To contact the reporter on this story: Jurjen van de Pol in Amsterdam jvandepol@bloomberg.net