In life, just about everything is inter-related. Data for retail sales in Europe during the last month of 2013 showed that the Eurozone saw its worst monthly downturn for thirty months. Consequently, the failure of the bloc to bounce back to proper growth is due to those fickle consumers! Inflation in the Eurozone for last month fell back to 0.7% and has stoked fears that the bloc may fall into a mini price ice-age of deflation (God forbid) where irresponsible consumers hang onto their cash in the hope that the goods and services they need will be cheaper in the future. Really, it’s all their fault… Or is it? Given a backdrop of 12% unemployment within the Eurozone and on-going austerity measures with the promise that cheap credit will not last forever, can the blame really be laid at the door of the poor consumer?
Many workers have had to live with either no wage increase, falling wages or, at best, rises which fall below the prevailing annual inflation figure (and 1 in 8 is surviving on benefits, of course). This means that the spending power of many Europeans (and others around the world) is falling in real terms. The tendency, therefore, is to buy goods in the sales and put off purchases for as long as possible – the recipe for deflation.
Eurozone retail sales declined by 1% from their December 2012 levels in December 2013 and by 1.6% over the November 2013 level. Even in Germany, long seen as the engine of the Eurozone economy, consumers spent 2.4% less in December 2013 than a year previously. Analysts had expected sales to improve since the economy of the bloc had improved over the same period, but this was not borne out by the sales receipts. It also sits against a backdrop where retailers have dropped their prices for 22 consecutive months, to encourage obstinate consumers to part with their hard-earned cash.
There is a suggestion that the ECB may drop interest rates to a fresh record low in a bid to stave off deflation. However, it is questionable that anything the ECB could do would produce the “feel good” factor needed to stimulate consumer spending – at least in the short term. What is needed is a stimulus to employment prospects in Europe and a real-term increase in peoples’ take-home pay. But of course, employers are reluctant to pay more if they aren’t sure that there is a strong market for their goods and services…