Euro area’s retail sales sector outlook darkening, economy likely to slow in Q1

The retail sales data for the month of January for euro area gave some relief that the consumer sector did not weaken as anticipated during the turn of the year. However, the sector's outlook is worsening. Euro area's retail sales volume rose 0.4% m/m in January.

The data for November and December were revised upward, leaving the annual growth rate at 2%. January's annual growth rate is 2.1%. In terms of value, retail sales rose 0.1% m/m, as compared with December's 0.4% growth. Country wise, Germany's sales volume grew 0.7% m/m in January, whereas French sales were stagnated.

Nevertheless, the consumer spending outlook has declined. Indeed, the currency bloc has re-entered deflation, which should increase consumer spending power and help sales volume in the short term. However, European Commission's consumer sentiment measure dropped sharply in February and indicates towards annual retail sales growth slowing to about 1.5%.

Meanwhile, the euro area economy is expected to have slowed in Q1, in spite of the euro area's Composite PMI being revised upward from the flash estimate. The figure has been revised upward to 53, lower than 53.6 in January and Q4 2015's average of 54.1.

Euro area's four biggest economies registered drop in their Composite PMIs. French index was revised downward to 49.3 from 49.8. It is a 13-month low figure and deeper into recession territory. Meanwhile, Spain's and Italy's Composite PMIs fell from December's figure. Spain's dropped to a 14-month low, suggesting that political uncertainty might be impacting the economy negatively.