Eurozone retail sales drop more than expected in June as prices rise

Eurozone retail sales plunged more than expected in June as prices at factory gates continued to rise, data showed on Wednesday, signalling a weakness in consumer demand that could herald a recession in the second half of the year.

The European Union's statistics office Eurostat said the volume of retail sales in the 19 countries sharing the euro, already adjusted for inflation, fell 1.2% month-on-month in June for a 3.7% year-on-year decline. Economists polled by Reuters had expected unchanged monthly sales and only a 1.7% annual fall.

The drop in retail sales, a proxy for consumer demand, comes as producer prices rose 1.1% month-on-month in June for a 35.8% year-on-year surge, Eurostat said, signalling more upward pressure on consumer inflation and downward pressure on demand.

While the eurozone economy grew more than expected in the second quarter, economists said the expansion was likely to have been the last hurrah before a likely recession in the second half of the year.

They said the economy would suffer because of the surging prices, fuelled mainly by high energy costs caused by Russia's invasion of Ukraine, and global supply chain problems.

Eurostat data showed that energy prices in June were almost double compared to 12 months earlier, but even if they were excluded, producer prices were still 15.6% higher year-on-year in June, a rise that is bound to affect consumers' purchasing power.

The biggest drop in retail demand was for non-food products, especially via mail order and the internet where they plunged 12.5% year-on-year, Eurostat said.

Germany, Europe's biggest economy, showed the steepest drop in retail sales of 8.8% year-on-year, with the third biggest Italy also showing a decline of 2.8% in annual terms. Second biggest France still managed a 0.6% year-on-year rise.

Retail sales also dropped 6.1% year-on-year in the Netherlands, 4.8% in Austria, 8.8% in Ireland and 4.5% in Finland.