Eurozone retail sales slump spurs hopes for rate cut

The Eurozone, comprising 15 nations sharing the euro, saw a higher than expected slump in their retail sales across Europe in October, leading to expectations of European Central Bank  (ECB) announcing a cut in interest rates this week.

The weak sales figure corroborates the weakening of the economy and shows no signs of picking up in the fourth quarter.

Sales across the eurozone were down 2.1 per cent from a year earlier and declined on a month-by-month basis in October by 0.8 per cent. The output levels had worsened according to a business activity survey.

Eurostat figures showed that the eurozone inflation rate fell to 2.1 per cent in November, from 3.2 per cent the previous month, increasing the chances of a likely rate cut.

Retail sales in September had been flat compared with August, and down 1.4 per cent on an annual basis.

There is a widespread expectation that the  (ECB) is likely to cut rates from the current 3.25 per cent level on Thursday.

ECB had last month reduced rates by half a percentage point, with its president, Jean-Claude Trichet, not ruled out further cuts in order to limit the economic downturn in Europe.

The slowdown in the eurozone retail sales is attributed to the global financial crisis, reduced consumer spending, job loss and decrease in export. This may result in further worsening of the fourth quarter.

According to research group Markit, business activity data is not too encouraging and has revised its purchasing managers' index down from its first estimate of 39.7 to 38.9 points in November.

It indicates that any figure less than 50 representing a contraction, and the latest number compares unfavourably with the 43.6 figure in October.

Fortis' parallel service sector activity index also fell from its first estimated figure of 43.2 points in November down to 42.5 points.