Eurozone Retail Sales Edge 1.1% higher in July

Eurozone retail sales volumes grew by 1.1% in July, which was stronger than the expected increase of 0.5% for the month, while the June data was revised marginally to show a 0.1% decline from the originally reported no change. On an annual basis, there was a 2.9% increase from 1.7% the previous month with food sales rising 1.8% and non-food sales rising 3.2%. There will be some optimism surrounding the data with sales moving significantly above the 2008 peak for the first time, although overall growth rates are still subdued.

There was also a 1.1% increase in food sales for the month, while non-food sales increased by 0.4% with overall sales boosted by a recovery in fuel sales on the month following July’s sharp decline. Sales in France and Germany achieved a visibly stronger trend for the month, which helped underpin overall demand and there was also a recovery in Belgium, which suggests the impact of recent terrorism incidents across the region may be fading. August data will be watched closely, although the data is vulnerable to significant seasonal distortions.

Economists polled by Reuters had forecast a milder 0.6% increase in sales on the month and a 1.9% rise from the previous year.

The monthly figures follow a revised 0.1% slump in sales for the month of June, earlier estimated by Eurostat to be flat. The EU statistics office also revised the yearly figure for June, in this case upwards, to 1.7% from the previously estimated 1.6%. The 1.1% point rise in July is by far the highest monthly increase this year, more than double the 0.4% growth posted in May, until now the strongest performance of 2016. The boost in retail sales came in the month following the June 23 Brexit referendum, in a sign that consumers' morale was not immediately hit by the British vote to leave the EU.

Monthly retail sales in the European Union as a whole were also the strongest of the year in July, growing 1.0% during the month, after a 0.2% fall in June. In Britain sales increased 1.3% in July after a 0.8% drop in June. In the euro zone, monthly sales were boosted mostly by a 1.8% spike in consumer purchases of car fuel. Retail sales of food, drinks and tobacco products went up 1.1%.

In the recent spate of very low interest rates and rising employment, there should be solid growth for overall consumer spending and the latest data will offer some relief over underlying trends, although policy-makers will be looking for the improvement to be sustained over the medium term. The market reaction was limited with most attention on oil prices and EUR/USD held steady around 1.1170. Bunds were little changed, while the Eurostoxx 50 index extended gains to close to 0.45% on the day.