Consumer spending in the eurozone slowed slightly in March with France and Italy leading the downturn. Retail sales in Germany, however, continue to rise, as does optimism in the services sector overall. The Purchasing Managers’ Index for France came in at 49.4, with any number below 50 indicating contraction and above 50 signalling growth. March was the first month since November that retail sales contracted in France. Italy registered its 15th consecutive decline in March with a PMI figure of 45.1, its lowest in six months. Germany bucked the trend with its best results in six months at 52.5. The composite figure for retail sales in the three largest economies in the eurozone was 49.5, which is down from 49.9 in February. March’s survey also showed a marginal rise in employment in the sector even as many retailers missed their revenue targets.
The Purchasing Managers’ Index is a survey of representative retail companies in Germany, France and Italy, which combined account for 62% of total eurozone retail sales by value.
Alex Gill, economist at IHS Markit, which compiled the data said:
“Operating conditions in the Italian retail sector remained precarious, as evidenced by another sharp decline in like-for-like sales, compounded by a further fall in gross margins amid strong competitive pressures. Monthly sales also dropped in France for the first time in three months as political uncertainty and inflation began to weigh on consumer demand.”
Despite the dip in retail sales in France and the continued fall in Italy, the overall services sector in Europe registered its highest PMI figure for 71 months in March. As input prices begin to rise in some eurozone countries and costs get passed on to consumers, some analysts have turned to the ECB to see whether it will follow in the footsteps of the US Fed and raise interest rates. Speaking at a press conference in Frankfurt today ECB President Mario Draghi indicated that the economic recovery in the eurozone was still too fragile to call for an end to quantitative easing or an interest rate rise.
“We are confident that our policy is working and that the outlook for the economy is gradually improving. But even so, we have not yet seen sufficient evidence to materially alter our assessment of the inflation outlook – which remains conditional on a very substantial degree of monetary accommodation. Hence a reassessment of the current monetary policy stance is not warranted at this stage,” Draghi said.