Eurozone retail sales plummeted 6.1% during November lockdowns

But economic confidence has picked up for the region despite the Covid-19 crisis

A pedestrian outside a closed shop in Berlin, Germany. The November decline in eurozone retail sales was the most since April when the first wave of lockdowns was fully under way. EPA

Retail sales across the eurozone plunged by 6.1 per cent on the month in November when much of the bloc was subject to heightened movement restrictions.

The decline in retail sales in the 19 countries sharing the euro was the most since April when the first wave of lockdowns was fully under way, according to Eurostat, with the monthly decline following a 1.4 per cent month-on-month rise in October.

The November figures were 2.9 per cent down on the same month a year ago.

Jack Allen-Reynolds, senior Europe economist at Capital Economics, said retail sales were nowhere near as weak in November as they were during the first lockdowns, despite the closure of non-essential shops across large parts of the currency union.

“Admittedly, the 6.1 per cent monthly decline in sales was much bigger than expected. But the level of sales was only 3.2 per cent lower than last February, before the pandemic began, whereas in April sales were over 20 per cent below their pre-pandemic level,” Mr Allen-Reynolds said.

The retail slump was led by a 10.6 per cent drop in demand for automotive fuels and an 8.9 per cent decline for non-food products. France recorded the largest decrease in overall retail trade of 18 per cent followed by Belgium with 15.9 per cent.

The European Central Bank boosted its monetary stimulus by €500 billion ($612.72bn) in December, taking the total stimulus since the start of the pandemic to prop up companies and households to €1.85 trillion.

The region’s inflation rate held at minus 0.3 per cent in December for a fourth consecutive month, with a measure excluding volatile items such as food and energy remaining at a record low.

The weak price pressures at the end of last year met expectations, said Mr Allen-Reynolds, and while core inflation is likely to increase this year, and higher energy inflation will drag up the headline rate, both will remain a long way below 2 per cent.

Meanwhile, an economic confidence index for the eurozone picked up in December, with manufacturers in particular showing resilience against the rising number of Covid-19 cases, which has triggered tougher restrictions.

The European Commission sentiment index rose by 2.7 points to 90.4 from the previous month, mainly driven by optimism among consumers and in the industrial sector. An indicator for employment expectations also recovered from a drop in November.

The data adds to evidence that the European economy entered the second wave of lockdowns in relatively robust shape. Italy and Spain saw some of the strongest gains in confidence in December. However, services providers and retailers – those most directly hit by government curbs – recorded a slight drop in sentiment.

“The index was higher on average in Q4 than it was in Q3. That said, this may in part reflect optimism about the future as a result of the vaccine news. We doubt that it is a sign that activity increased significantly in December or Q4 as a whole,” said Mr Allen-Reynolds.

While the economy may have fared better in the fourth quarter than anticipated, uncertainty over performance is mounting at the start of 2021.

Germany, the eurozone’s largest economy, opted to keep most shops, restaurants and recreational facilities shut until at least January 31. A slow and uneven start to the implementation of vaccination campaigns is also casting doubt on how quickly businesses will recover, said Maddalena Martini, economist at Oxford Economics.

“If delays and major logistical issues persist, and large shares of the population remain reluctant to get vaccinated, the boost to recovery could be delayed,” she said.

Separately, the eurozone’s construction sector took a hit in December, with a drop in activity and increased job losses, as well as weaker business sentiment.

The IHS Markit/CIPS construction Purchasing Managers' Index (PMI) slipped to 45.5 in December from 45.6 in November, the 10th month of contraction in construction activity with France reporting its steepest fall since May.

“With appetite for new construction projects remaining subdued, firms across the bloc reduced workforce numbers at a slightly quicker pace in the latest survey period,” said Usamah Bhatti, economist at IHS Markit.

Concerns surrounding the longer-term effects of the pandemic on the wider construction sector, alongside a lack of new projects in both the public and private sector being bought to tender, resulted in an extension to the pessimistic outlook held by eurozone-based builders for a fifth month in a row.

This contrasted with Britain, where the construction sector extended its robust recovery from earlier Covid lockdown restrictions in December, with housing the biggest driver of construction growth,

UK construction PMI slipped to 54.6 in December from 54.7 in November, but remained comfortably above the 50-mark that separates growth from contraction, as it has been since June.

Mr Allen-Reynolds said the first quarter of this year is set to be worse than expected because of the recent extensions of strict lockdowns. “[This could] increase the chance that the economy will stagnate or even contract in the first quarter,” he said.