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Eurozone: Unemployment and retail sales plummet - ING

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Jan 7, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

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    FXStreet (Delhi) – Bert Colijn, Research Analyst at ING, notes that the Eurozone retail sales declined for a 3rd month in a row in November.

    Key Quotes

    “The decline of -0.3 percent was a disappointment as analysts had expected a 0.2 percent increase. While Germany saw growth in sales of 0.2 percent, France experienced a decline of -1.2 percent - possibly related to the Paris terrorist attack of mid-November, while Spain also saw retail sales decrease by -0.2 percent. Interestingly, the largest decline was noted in fuel sales, while prices dropped in November.

    The decline is somewhat surprising given relatively strong consumer confidence, improvements in the labour market and tailwinds from low oil prices, but it remains to be seen whether total consumption is in a similar slump as retail sales is. New car registrations showed a strong increase of 2.6 percent month-on-month in November, making the picture for current consumption somewhat more ambiguous. Confidence indicators for the service sector as a whole are also more optimistic than for the retail sector, hinting at a possible split in performance.

    While retail sales in November were cause for concern, the unemployment rate was a clear plus. The decline to 10.5 percent from a downwardly revised 10.6 percent in October shows that the European labour market is performing relatively strongly in the fourth quarter, which adds to the positive outlook for domestic demand in the months ahead.

    As Germany is already at a historical low unemployment rate of 4.5 percent according to Eurostat, the big gains are currently made in the other large Eurozone countries. Spain, France and Italy all saw strong improvements in between September and November, as the unemployment rate declined by -0.2, -0.3 and -0.2 percentage points respectively.

    Although the increased pace of improvements in the labour market is an encouraging sign, it is unlikely that this will lead to higher inflation in the months ahead. The unemployment rate is still well above its natural rate of 9.6 percent according to the OECD, meaning that there is still a fair amount of slack in the labour market and that inflationary pressures from the job market are unlikely to increase significantly in the months ahead. That being said, it does probably lead to continued steady recovery of domestic demand, which is an encouraging note for early 2016.”
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