UBS Economics-European Economic Comment _Eurozone Retail sales disappoint...-107419647.pdf

ab5April2024GlobalResearchandEvidenceLabEuropeanEconomicCommentEurozone:RetailsalesdisappointagaininFebruaryRetailsalesfell0.5%m/minFebruary,afterstagnatinginJanuaryInFebruary,Eurozoneretailsalescontinuedtheirweaktrendofthepasttwomonths,fallingby0.5%m/m(-0.7%y/y),slightlyweakerthanconsensus(-0.4%m/m).ThisfollowedstagnationinJanuary(reviseddownfrom+0.1%m/m)suchthatretailsalessofarinQ12024are0.5%downvs.Q42023levels.TheFebruary2024printis5.4%lowerthanthepre-pandemictrend(Figure3RetailsalesIndex(2015=100)).Improvinghouseholdfinances,butnowillingnesstospendongoodsEurozoneretailsaleshavebeenweakoverthepastyear,drivenbythesqueezeinrealincomes,rotationofconsumptionawayfromgoodstowardsservices,weakconsumerconfidenceaswellastheriseininterestcostsforhouseholds.However,realwagegrowthhasnowturnedpositiveasinflationfallsandnominalwagegrowthremainshigh,andweexpectthatretailsalesandgoodsconsumptionshouldrecover.Consumerconfidencehasindeedgraduallyedgedupoverthepastmonths,drivenbyimprovementsinhouseholds'financialexpectations(Figure17Householdfinancialsituation,past12mandexpectations).However,householdsstillseemreluctanttoconductmajorpurchases,whichmightbeafactorbehindtheweaknessinretailsales(Figure4Eurozoneretailsales,consumerconfidenceandthelikelihoodofmajorpurchases).Februaryweaknessinretailsalesbroad-basedacrossproductgroupsThedeclineineurozoneretailsaleswasbroad-basedacrossallproductcategories:purchasesofautomotivefuelsdeclinedthemost(-1.4%m/m),followedbyfood,drinksandtobacco(-0.4%m/m)andnon-foodproducts(-0.2%m/m.AslightpositiveisthatnewcarregistrationswereupinFebruary(+0.9%m/m),buttheyalsoremainbelowQ42023levels.Countrywise,thefallwasdrivenbyGermany(-1.9%),whereasFrancesawamuchsmallerdecline(-0.3%m/m),andSpainandtheNetherlandssawanincrease(both+0.5%m/m,Figure6Retailsales(y/y%)).DataforItalywerenotreportedinthisrelease.Comparedtopre-pandemiclevels,Frenchretailsalesare7%higher,whileGermany'sare2%below(Figure7Retailsales(Q42019=100)).WeexpectconsumptionandgrowthtorecovermodestlyGiventherecoveryinrealwagegrowthandastronglabourmarket,weexpecttheoutlookforretailsalesandhouseholdconsumptiontoimprove.Thisunderpinsourgrowthforecastof+0.2%q/qinQ12024and+0.6%y/yin2024,butweacknowledgedownsideriskstoourforecast.Therecoveryinconsumerconfidencehasbeenslowerthanexpectedsofar,andanyimprovementinharddatasuchasretailsalesisunimpressive.LookingaheadtoMarchretailsalesEurozoneconsumerconfidenceincreasedto-14.9pointsinMarch,thehighestlevelsinceFebruary2022.RetailconfidenceintheEuropeanCommissionBusinesssurveyalsoincreased.Theseshouldbepositivesignsforretailsalesgoingforward,albeitsomewhatcloudedbythefactthathouseholds'expectationstoconductmajorpurchasesoverthecoming12monthsdidnotimproveintheMarchsurvey.Marchretailsaleswillbepublishedon7May.Aprilflashconsumerconfidencewillbereleasedon22April,andthefullBusinessandConsumersurveyon29April.Forfurtherdetail,seechartsandtablesoverleaf,includingtheUBSEuropeanconsumerheatmaponp.6/7.ThisreporthasbeenpreparedbyUBSAG.ANALYSTCERTIFICATIONAND