Eurozone economy leans on domestic demand for revival
Eurozone retail sales rose by a record amount in May, while the region’s industrial base experienced a smaller rebound, prompting economists to argue that the bloc’s pandemic-stricken economy is reliant on domestic demand to fuel its recovery.
Consumers across Europe went on a shopping spree after the coronavirus lockdowns were lifted, helping eurozone retail sales to rise by a record 17.8 per cent between April and May, outstripping analysts’ consensus expectations of a 15 per cent increase.
Eurozone consumer spending in May was just 5 per cent below its level a year ago, driven by a sharp rebound in sales of clothing, footwear, petrol, electronics and computer equipment.
The figures, released by Eurostat on Monday, add to hopes that the lifting of the restrictions imposed to contain the spread of the pandemic could unleash a flurry of pent-up purchases — aided by help and incentive programmes from European governments.
Meanwhile, German factory orders rose by a record 10.4 per cent between April and May, according to data published by the Federal Statistical Office on Monday. But this was a smaller increase than most economists had expected and highlighted a sharp divergence between a healthy rebound in orders from customers inside the eurozone and a much weaker rise in orders from those outside the bloc.
New domestic orders increased by more than 12 per cent, while orders from the rest of the eurozone rose almost 21 per cent. But in the rest of the world they were up only 2 per cent.
“Normally the eurozone always sees net exports rising first and kick-starting a recovery, which is followed by domestic demand coming back. But there are many reasons to believe that is not the case this time and the latest data back this up,” said Carsten Brzeski, economist at ING.
German factory orders remained almost 30 per cent down from the first quarter and from May 2019, underlining the depth of the global recession and the gap that must be filled for demand in the country’s factories to return to pre-pandemic levels.
“While consumption may be picking up swiftly, industry is taking longer to find its feet,” said Rosie Colthorpe, economist at Oxford Economics. “On past form, today’s figures suggest that the risk to our [industrial production] forecast . . . are to the downside.”
Germany’s vast carmaking industry is one of the sectors hit hardest by the crisis as sales plummeted during the pandemic. The Federal Statistical Office said: “Turnover in the automotive industry increased again markedly in May 2020, after very low levels in April 2020. However, it was still nearly 47 per cent lower than in February 2020.”
Volkswagen, BMW and Daimler have recently restarted many of their production lines and brought tens of thousands of workers back to work, taking them off the country’s furlough scheme. But German car production is still expected to fall by a quarter to 3.5m cars this year, the country’s auto industry association said on Friday.
In Spain, industrial production rose 14.7 per cent in May, below economists’ consensus expectations for a 16.9 per cent rise. Overall Spanish industrial production remains almost 25 per cent below the levels of a year ago.
German investors are becoming less convinced about the strength of the eurozone economic recovery, according to the Sentix survey published on Monday. While the overall Sentix sentiment index improved for a third consecutive month, the forward-looking expectations part of the poll registered its first decline in four months.