Eurozone retail sales for June came in strong, giving fresh evidence that the region is on track for a rebound. Meanwhile, Spanish and Italian services purchasing managers’ data improved in July, though they still lag those of Germany and France, raising fears of a two-speed recovery. The following is a selection of analysts’ comments.
The recovery in retail sales paints a rosy picture about the eurozone economic recovery as sales returned to pre-crisis level in June, but we shouldn’t get too excited, says Bert Colijn, senior eurozone economist at ING. This V-shaped recovery in retail sales is supported by a large amount of pent up demand as shops have been closed throughout most of the eurozone for the lockdown period, he says. “As pent-up demand fades, the picture of rising unemployment and a stalled recovery in consumer confidence will subdue sales growth in the second half of the year,” Colijn says.
The eurozone composite PMI for July at 54.9 suggests a strong start for economic activity in the third quarter, a period in which Barclays expects a large technical rebound. “With all main indicators in expansionary territory, signs of a recovery are now unequivocal and the strong monthly prints, also reflected in hard data available since May, carry over positively into 3Q,” Barclays’ Ludovico Sapio says. However, downside risks to the outlook remain substantial as virus-related fears grow larger, Barclays warns. Questions remain over the medium-term prospects of economic recovery now that positive-base effects from the lockdown induced dismal levels of activity begin to fade while second-wave fears come to the fore, Sapio says.
The final July services purchasing managers’ indexes showed activity continued to improve across the largest four eurozone economies, what bodes well for the eurozone recovery, Rosie Colthorpe, European economist at Oxford Economics, says. Italy and Spain–which don’t release flash estimates–both registered services PMIs above the 50 mark, but the index was notably higher in Germany and France, again raising concerns about a two-speed recovery, Colthorpe says. “Those economies more reliant on struggling services subsectors, such as tourism, are likely to take longer to recover,” Colthorpe says. The economist says the pace of recovery in the eurozone is likely to soften due to the continuation of some containment measures and consumer caution.
Eurozone retail sales are now back at their pre-pandemic level from February, giving some optimism about the strength of the initial consumer rebound, Rosie Colthorpe, European economist at Oxford Economics, says. However, there are still reasons for caution, she warns. “There is likely to have been substitution of spending towards retail goods from services, given continuing restrictions in the latter,” Colthorpe says. There has also been strong growth in online sales, which were up 23.7% in June year-on-year, despite a fall over the month, the economist notes. “The pandemic has likely had a lasting impact on spending habits, meaning the strong bounce back in retail sales will not necessarily come to the rescue of the high street,” Colthorpe says.
Retail sales are back to February levels but it would be premature to speak of a complete recovery, says Florian Hense, economist at Berenberg. “For that to happen, retail sales would have to rise further over the next couple of months to make up for the very poor March and April,” Hense says. Furthermore, there are strong divergences among eurozone countries, with Spain and Italy lagging behind, while France and Germany lead, Hense says. While retail sales rebounded by 16.5% in Spain and 12.5% in Italy, sales still remain below pre-crisis levels, 5.3% below in Spain and 2.7% in Italy. In France, sales rose by 9.4% and German retail sales corrected by 1.6% in June, being 1.4% above February’s pre-pandemic levels.
On the other hand, UK Chancellor Sunak Rishi Sunak is reportedly considering raising business rates for the “most valuable properties”, which has spurred concern the move could hurt firms already struggling amid the fallout from the pandemic, while Sunak is said to have asked feedback from the industry if large premises, offices and luxury shops should pay higher rates. (Telegraph)
Meanwhile, UK Ministers were urged to rethink unemployment measures after a survey of over 500 companies by the British Chambers of Commerce warned that they would not use job-protection schemes set out by Chancellor Sunak last month. (FT)