Eurozone consumers still reluctant to spend

LONDON: Consumers in the 16 countries that use the euro remain reluctant to spend, official figures showed Wednesday, despite an easing in the government debt crisis that engulfed the eurozone for much of the year.

Eurostat, the EU's statistics office, said retail sales in the eurozone were flat in June from the previous month, down from a 0.4 per cent rise booked in May.

June's outcome was in line with expectations after figures showed that sales in Germany and France fell sharply, and means retail sales were only 0.4 per cent higher in June than the year before.

Analysts say that hardly suggests a rise in the eurozone's economic fortunes and that the recovery can only be self-sustainable if consumers start to spend more, especially if the US economy loses momentum, as recent evidence suggest.

So far, the economic recovery in the eurozone has been heavily reliant on exports from Germany, Europe's economic powerhouse.

The figures came out a day ahead of the European Central Bank's expected decision to leave its key interest rate unchanged at 1 per cent.

Though its president Jean-Claude Trichet is expected to sound a more optimistic tone in his press conference, he is likely to point to the hurdles the eurozone economy faces, not least the fact that consumers are holding back from major purchases even though separate figures last week showed consumer confidence running at a 26-month high.

The worry is that consumer spending may get pressured by the austerity measures being enacted across the eurozone in response to the government debt crisis.

"As the fiscal squeeze that has already begun in the periphery spreads and tightens, we doubt that a meaningful consumer revival will materialise," said Jennifer McKeown, senior European economist at Capital Economics. "With global demand likely to slow further, the eurozone recovery seems set to stall before long."

Eurostat also revealed that retail sales in the 27-nation EU, which also includes non-euro countries like Britain and Sweden, was up a tepid 0.1 per cent in June for a 0.5 per cent year-on-year increase.