Eurozone retail sales, sentiment point to mild recession

Eurozone retail sales fell and economic sentiment soured at the end of 2011, pointing to recession in the months ahead, but the first improvement in the business climate in 10 months offered hope that the expected downturn may be mild. Europe's worsening sovereign debt crisis and governments' tough cost-cutting response appear to be driving the 17-nation currency bloc back into recession following the 2008-2009 global financial crisis, while the number of people out of work is rising.
"This data has recession written all over it," said Martin van Vliet, a eurozone economist at ING. "It is all but guaranteed that we are going to see a contraction in the eurozone in the fourth quarter," he said. Economists are divided over how deep the recession - defined by two consecutive quarters of economic contraction - will be, after a freefall in industrial sentiment appeared to stabilise in December. Retail sales for the bloc fell a worse-than-expected 0.8 percent in November from October, data from the European Union's statistics office Eurostat showed. Economists polled by Reuters had forecast a monthly fall of just 0.2 percent.
The volume of sales fell by 0.9 percent in Germany, the eurozone's top economy, and was down 0.4 percent in France and 0.7 percent in Spain. Pointing to the cautiousness of European households even in the run-up to Christmas, the busiest shopping time of the year, the European Commission said that in December, consumer confidence fell 0.7 points in the 17 countries sharing the euro.
In its overall reading of economic sentiment in the eurozone, the Commission said its indicator fell 0.5 points to 93.3, its lowest level since November 2009. A rise in the purchasing managers' indices for both manufacturing and services in December had been a cause for optimism, but the Commission's figure may dampen that.
One bright spot in the data was the improvement in the Commission's business climate indicator, which increased for the first time in 10 months as factory managers showed optimism about future production plans and export order books. That indicator was -0.31 points in December, compared to -0.42 points in November and better than the -0.50-point reading seen by economists polled by Reuters for the month.
Unlike the eurozone's economy, which is expected to contract in the fourth quarter of 2011 and the first quarter of 2012, the US economy is expected to grow about 2 percent in 2012, helping to increase export demand in Europe. High unemployment is also afflicting the eurozone, hurting consumers, and Eurostat said the bloc's joblessness rate was 10.3 percent of the working population in November, the same as October and up slightly from a year ago, when it was 10 percent.
That compared with an unemployment rate of 8.6 percent in the United States, Eurostat said. The number of unemployed increased for the seventh consecutive month by 45,000 people to 16.37 million out of work, while hiring intentions fell further in December. But while unemployment fell in Germany to 5.5 percent, the increase in Spanish and Portuguese unemployment rates to 22.9 percent and 13.2 percent respectively were the largest rises recorded, according to Eurostat.