Euro zone shoppers offer little respite to ill economy

BRUSSELS: French and German shoppers helped retail sales in the euro zone grow by more than expected in March but trade was still down on a year ago and will likely do little for the bloc's economy as it slips into recession.
Retail sales in the 17 countries using the euro rose 0.3 percent in March from February, the EU's statistics agency Eurostat said on Friday. Economists polled by Reuters had expected sales volumes to be unchanged.
The better-than-expected performance was due to stronger demand in France, where retail sales rose 0.9 percent, and in Germany, where sales climbed 0.8 percent.
But it did not mark a change in outlook, economists said.
Even in wealthy Belgium and Finland, as well as in indebted Spain and Portugal, sales contracted. Retail sales fell 0.2 percent on an annual basis across the euro zone in March, continuing a downward trend since the middle of last year.
"The consumer isn't the one who is going to pull the euro zone out of the downturn," said Greg Fuzesi, an economist at J.P. Morgan in London. "We see that consumer spending is going to continue to contract, almost until the end of the year, just because of the labor market and austerity and what that is doing to disposable incomes," he said.
Just over half of the euro zone's economic output is generated by domestic consumer spending, but demand for goods looks chronically weak as the EU's German-led debt and deficit reduction strategies leave governments with no room to spend.
The euro zone is heading into its second recession in just three years as the economic impact of the public debt crisis devastates consumer and business morale, revealing deep structural weaknesses in the bloc's economy.
In data released separately on Friday, the euro zone's services sector shriveled at a much faster rate in April than initially thought.
European Central Bank President Mario Draghi said on Thursday that the "economic outlook continues to be subject to downside risks."
That, economists say, is understandable with joblessness in the euro zone rising to a record 10.9 percent in April, while inflation has remained stubbornly high as world oil prices make it harder for businesses to cut prices and tempt back shoppers.
Consumer confidence data for April, released last week, showed morale sinking back to lows last seen at the depths of the euro zone sovereign debt crisis in December. The European Commission's survey underscored households reluctance to make big ticket purchases of goods such as cars and televisions.
"The bad news is, inflation is hardly likely to fall in the coming months. If crude oil prices do not fall significantly — and this is not expected — the inflation rate is only likely to drop below 2 percent again in the spring of 2013," wrote Commerzbank economist Christoph Weil in a note to clients.
Euro zone consumer price inflation was 2.6 percent in April, above the ECB's target of below, but close to, 2 percent.
The bank kept interest rates at 1 percent on Thursday to try to contain energy price pressures, while urging governments to do more to revive the economy without ignoring the need for debt and deficit reduction.
"We have to put growth back at the centre of the agenda without any contradiction with the need to pursue fiscal consolidation," Draghi told a news conference in Barcelona.