Euro area data turn positive, but analysts remain cautious
ROME: French consumer spending jumped sharply in February and Italian retail sales rose in January, data released Friday showed, but analysts were skeptical about whether euro area consumption was set for a prolonged upturn.
With continued high inflation and fears about the economy weighing on confidence, economists said that Fridays data were more a rebound from previously poor figures than the start of a significant shopping spree on the Continent.
A 7.5 percent rise in French car sales in February - after a 9.2 percent drop in January, when a new emissions law came into effect - was largely behind the countrys 1.2 percent overall increase in consumer spending from the previous month.
That figure was much higher than the 0.5 percent rise that economists had forecast.
Still, analysts warned that French consumer confidence remained weak - a gauge of sentiment for last month released Feb. 28 fell to a 20-year low due to fears about inflation and the economy - pointing to modest consumer spending for the foreseeable future.
“Inflation is at its highest in 16 years, the real estate market is cooling, job creation will probably slow, and theres a negative psychological effect from the troubles in the financial markets,” said Mathieu Kaiser of BNP Paribas.
Those same fears are hitting Italians, where consumer confidence in March fell to its lowest level since May 2004.
The research institute ISAEs seasonally-adjusted consumer confidence index fell to 99 in March, the lowest since May 2004, from a 102.8 in February as Italians fretted about rising prices and personal finances.
“All the main components have worsened, from the prospects for savings to the view on prices and the opportunity for buying durable goods,” said Paolo Mameli, an analyst at the bank Intesa Sanpaolo.
Still, retail sales in Italy rose for the first time in three months in January, up 0.2 percent on the month and 1.0 percent on the year, the statistics office ISTAT said. However, the rise was modest when compared with inflation, which is running at an annual rate of 3.1 percent.
With Italian wage increases well below inflation, Marco Valli at the bank Unicredit MIB said reduced spending power was bound to weigh on consumer spending eventually.
“I would be hesitant to forecast a collapse in consumption,” he said. “There will be a correction or a slowdown - thats pretty much inevitable due to the reduction in disposable income.”
Economists see little on the horizon to lift the confidence of euro area consumers and persuade them to increase spending in the medium term. The German Ifo index for March, due to be released Wednesday, is expected to show a fall for the first time in three months.
At the same time, data from outside the euro area suggest a slightly brighter outlook. On Thursday, the British National Statistics office said retail sales there had jumped 1 percent last month and rose 5.5 percent from a year earlier, confounding analysts who had predicted a 0.2 percent fall.
The data also showed consumers kept on spending despite the fact that shops did not cut prices in February as much as in January, with increased buying of food a major factor.
“With confidence at a 13-year low, real income growth weak and housing wealth falling, its hard to see what is keeping consumers spending,” said Vicky Redwood at Capital Economics. “Yet these figures suggest that they certainly are.”
