Greek retail sales slump, add to budget, stats worries

* August retail sales post steepest decline in 10 months

* Adds to concerns about budget data, political risks

* Greek bond spreads versus bunds widen to four-week high

By Harry Papachristou

ATHENS, Oct 29 (BestGrowthStock) – Greek retail sales posted their
deepest slump in almost a year in August, data showed on Friday,
adding to investor worries about recession and budget slippages
in the debt-laden country.

Greek bonds and banking stocks have taken a beating this
week on resurgent doubts over the country’s ability to avoid
bankruptcy. The government has exhausted the scope for further
tax increases and faces an upward revision of its 2009 budget
deficit, underlining the scale of the economies it needs to
make, as well as challenging local elections next month.

Retail sales dropped an annual 11.8 percent in August after
a 9.1 percent decline in July, as austerity-pinched households
curbed consumption, according to the statistics service ELSTAT.

Excluding fuels and lubricants, whose prices are volatile,
retail sales by volume dropped 12 percent, their steepest fall
since June 2009.

“Households are under intense pressure, stemming from higher
taxes and significantly lower public spending. Moreover, the
labour market is in dire straits, while credit conditions remain
tight,” said Diego Iscaro, an economist with IHS Global Insight.

“Unfortunately, these headwinds are expected to be in place
for a significant time.”

Consumption had been the main driver of Greece’s
debt-fuelled economy after it joined the euro in 2001. But it
has been hit by the debt crisis with tax hikes and wage cuts
agreed in exchange for a 110 billion euro ($150 billion) EU/IMF
bailout.

Average real salaries will fall by 8 percent this year as a
result of wage and benefit cuts, Greece’s central bank estimated
earlier this week. Boosted by a VAT tax hike, fuel prices rose
by about 50 percent since the beginning of the year and
inflation jumped to a 13-year high of 5.6 percent in September.

Slumping sales will make it more difficult for the
government to boost revenues to meet its ambitious fiscal
targets of slashing the budget gap by about half to 7.8 percent
of GDP, according to market observers.

“Businesses are sitting on a tax bill of 3 billion euros
that they must pay by the end of the year,” Vassilis Korkidis,
chairman of retail trade association ESEE, told Reuters. “I
believe this target will be very difficult to meet now.”

Major retailers, from discount retailer Aldi to sports wear
company Puma (PUMG.DE: ) and France’s Fnac (PRTP.PA: ) are cutting
their exposure or pulling out from the country [ID:nLDE69O0C4].
Local supermarket chain Atlantic (ATLr.AT: ) has filed for
bankruptcy and is selling off branches, citing the recession.

The consumption slump is adding to investors’ concerns after
Finance Minister George Papaconstantinou said earlier this week
Eurostat will revise upwards Greece’s 2009 deficit to above 15
percent of GDP from the latest estimate of 13.8 percent of GDP.

On Monday, Prime Minister George Papandreou hinted he might
call a snap election if voters do not back him clearly enough in
local elections on Nov. 7 — a comment seen by local media as
mostly meant to rally disgruntled supporters for the vote.
[ID:nLDE69P0F0]

“Political uncertainty and the revision to historical fiscal
data – which may increase fears of further tax hikes – could
damp consumer confidence even more,” said Iscaro.

The premium investors demand to hold Greek government bonds
rather than benchmark German debt (GR10YT=TWEB: ) (DE10YT=TWEB: )
rose above 800 basis points from 674 basis in mid-October.

“The fact that spreads are widening shows how vulnerable we
still are to everything that can be construed as political
instability,” Greek Prime Minister George Papandreou said in a
news conference in Brussels on Friday.

The Greek central bank, the EU and the IMF expect the
country’s economy to shrink by 4 percent this year, making this
its deepest and longest recession in almost 40 years.
(Editing by Ruth Pitchford)

Greek retail sales slump, add to budget, stats worries