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European Retail Sales Declining Continuously: PMI

Friday, 01 February 2008

European retail sales fell for third month in a row in December 2007 due to rising inflation and declining sales of big retailers, forcing the European Bank to take corrective actions.

The retail sale in Europe fell consecutively for third month in December 2007. Rising inflation dried up the holiday season spending, according to the Bloomberg Purchasing Managers Index (PMI), as reported by Bloomberg.

The sales measure in the European nations dealing in Euro was seasonally adjusted to 46 in December as compared to 45.9 in November and 47.9 in October 2007. A reading underneath 50 in the index points towards decline in retail sales. This index is prepared by NTC Economics Ltd for Bloomberg LP in which more than 1,000 executives are surveyed.

The main cause for this consecutive decline in retail sales is accelerating inflation rate and falling sales of Europe’s biggest retailers such as Wal-Mart, Carrefour. Also, rise in inflation is depleting the purchasing power of consumers.

Rocketing crude oil prices has driven the inflation rate, which is a specific concern for people. Increasing fuel and electricity bills are forcing people to adjust their household budgets. Furthermore, the political and economic uncertainty in three big Eurozone economies, Germany, Italy and France, is forcing people to assume a “wait and see” approach. Consequently, there is a slowdown in retail sales. On top of this, labor strike in France has created an environment of social turbulence and hampered European retail sales.

Other significant factors, such as increase in interest rate and unemployment particularly, in retail sector where workforce reduced to average for the first time in last ten months, except temporary recruitment during festival season, are stopping consumers to make big or small purchases even on festivals like Christmas.

A Senior Research Analyst at RNCOS opined, “Increasing inflation rate is the main reason curbing the purchasing power of customers. Spiraling oil prices and decrease in interest rate in the US and the UK are acting as catalysts to slowdown the European retail sales. The slowdown would sustain in this month unless strong measures are taken to check the inflation. The European Central Bank needs to take initiatives to control inflation, to increase employment level, and to stabilize prices so that it consumers can regain their confidence.”

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