Euro Zone Retail Sales Slump, Deflation Worries Arise with Lack of Demand

by on February 5, 2014 10:42 am BST

The holiday shopping season for the euro zone was discouraging as retail sales slump more than analysts forecasted. Retail sales fell 1.6 percent in the euro-bloc, while analysts were expecting a decline of .7 percent. November’s retail sales were revised downward from 1.4 percent to .9 percent, according to data from Eurostat.

Regardless of positive signs in many euro zone countries, consumers are still hurt by high, double-digit unemployment. Less descretionary income means less demand for non-essentials. Deflation is also becoming a materializing risk as inflation remains under one percent, .7 percent in January.

As consumers refrain from spending where it is not needed, businesses are having to repeatedly discount merchandise in order to attract demand. Unfortunately, the price discounting could exacerbate potential deflation. On Thursday, the European Central Bank (ECB) will have their benchmark rate decision, which is expected to remain at the historical low of .25 percent.

JP Morgan’s Greg Fuzesi said “some expect a move on rates, some expect a move on liquidity and some expect no move at all, including us.” The ECB could follow in the Federal Reserve’s zero-interest rate policy, ZERP, but it is unlikely that the central bank will do anything aggressive to help mend the ailing economy.

The EURUSD is down modestly, currently trading at 1.3503.