UPDATE 1-Euro zone retail sales plunge as debt crisis bites

* Euro zone retail sales down 1.2 pct month-on-month

* Deepest fall since October 2008

* Compared to expectations of 0.1 pct rise

(Recasts with economists’ comments)

By Jan Strupczewski

BRUSSELS, June 3 (BestGrowthStock) – Euro zone retail sales fell
sharply in April, missing expectations for a small monthly rise,
data showed on Thursday, as uncertainty over jobs and government
spending curbed consumer demand.

The European Union’s statistics office said euro zone retail
sales, a good indication of households’ propensity to spend,
fell 1.2 percent month-on-month, the deepest fall since October
2008, for a 1.5 percent year-on-year drop.

Economists polled by Reuters had expected a 0.1 percent
monthly increase in retail sales in the 16 countries using the
euro and a 0.2 percent year-on-year decline.

For full details and table see:
http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/4-03062010-AP/EN/4-03062010-AP-EN.PDF

“A sluggish labour market, tighter fiscal policy and rising
uncertainty about the economic outlook point to ongoing consumer
weakness in the coming months,” said Nick Kounis, economist at
Fortis Bank.

“However, the global background still looks favourable and
the fall in the euro should also support exports. So the overall
picture is likely to be one of moderate economic growth.”

Consumer demand is weak because unemployment in the euro
zone is at an almost 12-year high of 10.1 percent and expected
to rise further, which keeps a lid on wage growth and limits
households’ spending power.

Retailers in Europe have been struggling with falling food
prices and a reluctance among shoppers to step up spending
despite signs of economic recovery.

Kingfisher (KGF.L: ), Europe’s biggest home improvements
retailer which also runs the Castorama and Brico Depot chains in
France, said on Thursday it expected trading conditions to
remain tough, as governments across Europe looked to cut debt.

Consumers and businesses alike were affected by uncertainty
about the planned austerity measures, Kingfisher said.
Economists said the euro zone debt crisis also raised consumer
fears that the economy may turn bad again.

“Consumers in a number of euro zone countries are now facing
earlier and/or more aggressive fiscal tightening as a
consequence of the region’s debt crisis,” said Howard Archer,
economist at IHS Global Insight.

“Consumers are also concerned that the debt crisis could
derail euro zone recovery,” he said. “This reinforces our belief
that the ECB will keep interest rates down at 1.00 percent deep
into 2011,” he said.

Eurostat said food drinks and tobacco sales fell 1.1 percent
month-on-month in the euro zone in April the same as non-food
products. Year-on-year the drops were 1.8 and 1.1 percent
respectively.

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(Reporting by Jan Strupczewski, editing by Jason Webb)

UPDATE 1-Euro zone retail sales plunge as debt crisis bites