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Eurozone business expands, retail sales weak

Eurozone business expands, retail sales weak
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There was mixed news for the eurozone where business expanded for the first time in 18 months in July, albeit very slightly. But at the same time we learned that retail sales declined again in June.

Surveys of thousands of companies in the 17 countries using the euro, suggested the region’s economy is slowly starting to stabilise – even if healthy growth still looks to be a long way off.

That supports the European Central Bank’s hopes for a gradual overall improvement later this year, which is likely to be driven mainly by exports and low interest rates.

The ECB did cut its main interest rate to a record low of 0.5 percent in May and has said it will keep rates low for an extended period, in part to boost weak consumer spending.

“Cusp of recovery”

“Granted, the euro area has experienced false dawns before, but the improvements in confidence and other forward-looking indicators warrant at least some optimism for the outlook this time around,” said Rob Dobson, senior economist at PMI compiler Markit.

“The real sparks which will hopefully ignite the recovery are the increasing signs of stabilisation in domestic markets. This not only aided manufacturers, but also pulled the service sector right back to the cusp of recovery.”

German business activity rebounded in July, while the downturns in the euro zone’s next three biggest economies – France, Italy and Spain – eased.

Retail dip

However, highlighting how fragile the bloc’s recovery is retail sales fell broadly for the first time in three months in June linked to depressed household spending from the long recession and record high unemployment.

Fuel sales rose, but spending on food, drink and tobacco was down 0.6 percent from the previous month and there was a 0.2 percent decrease in purchases of electronics and clothing and items bought over the internet.

Retail sales in the largest economy Germany fell 1.5 percent while France, the second largest, saw a 0.6 percent increase.

One positive interpretation of the numbers came from Peter Vanden Houte, chief eurozone economist at ING, who said: “The negative retail sales growth figure in June is probably just a correction after the strong increase in May and not the start of a renewed downward trend.”

The EU’s statistics office Eurostat did issue a revised 1.1 percent rise for May.