Ever-increasing food and fuel costs claimed another victim today: European consumer spending. One of the “safe harbors” for US investors in recent months has been companies that are internationally diversified, but as Cisco (CSCO) and other recent earnings reports show, European fundamentals are beginning to break down. And this morning comes news that the European consumer has suddenly followed his/her American counterpart into belt-tightening.
Ken Wattret, senior economist at BNP Paribas in London sums it up:
This is pretty grim. The big picture has been very weak for some time and up until this point the ECB has been in denial. They keep on cheerleading the improvement in consumption, but it simply hasn’t happened.
European retail sales dropped 1.6 per cent in March, the most since at least 1995 and twice as much as economists forecast, as soaring fuel and food costs sapped consumer spending.
The drop in euro-area retail sales from the year-earlier month is the largest since the data series began more than a decade ago, the European Union’s statistics office in Luxembourg said today. From the prior month, sales declined 0.4 per cent. Economists had forecast a 0.7 per cent annual decline and a gain of 0.4 per cent from the prior month, according to Bloomberg News surveys.
A doubling of crude-oil prices in the past 12 months and soaring prices for food such as wheat and rice have undermined consumer sentiment across the 15 nations that use the euro. The European Central Bank, which meets tomorrow to decide on interest rates, has refused to follow its counterparts in the U.S. and the U.K. in lowering borrowing costs after inflation surged since August, reaching a 16-year high of 3.6 per cent in March.
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