Household spending prospects weaken

Recent news on the euro-zone household sector has placed a dent in hopes that the external recovery is spreading to the domestic economy. November’s sharp drop in retail sales, and Q3’s downward revision to household spending growth suggest that consumer spending is expanding at a snail’s pace. Looking ahead, the recent pick-up in CPI inflation and further fiscal tightening do not bode well either. Nonetheless, it remains too early to give up on a consumer recovery altogether. Despite falling in December, consumer confidence still points to a pick-up in the annual pace of growth. And for now at least, the business surveys still point to a rise in employment.