Sales fell -1.2% month-over-month in June, completing a serious contraction for the quarter. Decreases were seen in all sales categories, but were more significant in non-food products. All major eurozone economies saw sales contract, with the biggest declines seen in Germany and the Netherlands. While Q2 GDP growth surprised on the upside, tourism and other consumer services are expected to perform very well, in stark contrast to falling high street sales.
Retail sales have declined steadily since November and have slipped well below the pre-pandemic sales growth trend. Clearly, the severe squeeze on real incomes that Eurozone consumers are experiencing is beginning to take effect. The rebalancing of consumption from goods to services, now that services are again widely available after the pandemic, also played a role in the weakening of retail trade.
But with PMIs indicating that services consumption is now also weakening in the euro zone as the effects of the reopening fade and a surge in tourism is about to end, it is likely that consumption will contract in the coming quarters. This would lead to a slight recession in the euro zone. For the European Central Bank, these indicators pointing to an economy sliding into recession should temper expectations of a longer upward cycle, despite still high inflation.