Eurozone: Retail sales increased by 0.4% in May, the strongest growth this year - ING

Bert Colijn, Senior Economist at ING, suggests that in hindsight, May can be described as the calm before the storm for the European economy and May retail sales show just that.

Key Quotes

“The increase of 0.4% MoM was the strongest this year, leading to an annual improvement of 1.6%. While sales of food, drinks and tobacco were flat, non-food products increased by 0.7%. Fuel sales were flat as petrol prices increased on higher oil prices.

Consumer confidence grew strongly in May as fears of a global dip had subsided and the Brexit-vote was not yet expected. Unemployment also saw a strong decrease of more than 100,000 and inflation was still negative, both boosting income. This benign environment for consumption has boosted retail sales in May.

While over the past year Germany has seen remarkably flat growth in sales, this month was strong with 0.9% growth. Spain and France, having seen sales recover over the past year, experienced a weaker month with Spain even seeing sales decline by -0.4%.

While both months in Q2 have shown growth for retail trade, a weak carryover effect from the previous quarter will likely result in a weak growth contribution from retail trade to GDP in the second quarter. The same can be seen for new car registrations, another indicator of consumption growth. This means that while growth in domestic demand has continued at a steady pace, the quarterly growth number is expected to come in weaker.”