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Euro Zone Retail Sales Plunge, While UK's Industrial and Manufacturing Production Improve

Thu, Nov 5 2009, 12:09 GMT
by ecPulse.com analysis team

ecPulse.com

The euro zone released its retail sales for September today, ahead of the rate decision that is due later on today as well through Trichet's speech; where he is expected to explain the current situation in the euro zone, inflation and growth prospects.

Despite of the improvement seen in various sectors this week; retail sales are showing a decline in September. In August, the reading slipped for 15th month to 2.6% on the year and 0.2% on the month. Today, retail sales for the month of September came in at -0.7%, worse than both revised prior of -0.1% from -0.2% and the expected reading of 0.2%. On the year, it dipped to -3.6% from the revised of -2.3% from -2.6%, while markets were projecting -2.4%.

The rising unemployment and capped consumer spending are due to many employees losing their income or part of it. Still, companies are shedding jobs and closing affiliates to reduce costs and return to profitability. For instance, Siemens AG has slashed the number of workers, from all of its affiliates, to 408,000 this year from roughly 420,000. Also, there are other companies planning to terminate more employees, which may cause the number to become scarier in the coming period.

Jobless rate for the month of September rose to 9.7%, the highest since January 1999. Presently, there are 184,000 people asking for unemployment benefits, pushing the entire number of job seekers to 15.324 million. The highest figures appeared in Latvia and Spain; recording 19.7% and 19.3% respectively. The European Commission expects the rate of unemployed to reach 10.7% in 2010 and 10.9% in 2011, while the IMF predicts the percentage to jump to 11.7 in the coming year.

Policy makers at the ECB slashed the benchmark interest rate to a record low of 1% and introduced unprecedented methods of quantitative easing to revive the economy and spur spending. In addition, the bank offered to lend banks as much money as they want, at the current key rate to boost lending and thereby spending. However, such measures could not stall the rising unemployment.

Later on today, the ECB will set the rate and then Trichet talked about the outlook for the euro zone in the coming period, including the expected monetary and fiscal measures that will be adopted. Recently, there have been discussions about withdrawing stimulus, after the expansion seen in manufacturing and services.

However, Trichet announced that they will wait for the right time to withdraw stimulus and embark on more tightening monetary tools. In regards to  growth prospects, the European Commission projects that the euro zone this year will contract by 4.0%, while expanding next year by 0.7%, before growing more in 2011 by 1.5%.

In the U.K.; Industrial Production rose to 1.6% in September from -2.6%, while on the year the reading came in at -10.3%, higher than the revised -11.5%. Also, manufacturing production was released today, showing an incline to 1.7% compared with the revised -2.0%. Over the year, the reading surged to -9.3% from -11.6%.

The reading today translated the improvement seen in the manufacturing sector in the third quarter, where it continued into the fourth quarter; according to the data released this week, which showed that the manufacturing sector expanded in October after breaching the 50 barrier.

Later on today, the BoE will announce the interest rate and the amount of the asset purchase facility program, which is expected to incline to 200 to 225 billion pounds from 175 billion pounds to boost the economy that failed to emerge from recession in the third quarter, by showing unexpected contraction of 0.4%.

The British government predicts growth in the last quarter of the year and a contraction between 3.25% and 3.75% for the current year as a whole; whereas the European Commission forecasts the U.K. growth in 2009 to reach 4.6% contraction, while it anticipates the economy to expand in the fourth quarter to 0.4%.

Published on  Thu, Nov 5 2009, 13:28 GMT