Retail sales’ strong start to Q3 won’t be sustained

The first official euro-zone data release for July – retail sales – suggested that the consumer sector made a strong start to Q3. Indeed, the 1.1% rise in sales pushed the annual growth rate up to 2.7%, its strongest in five months. However, this is unlikely to be sustained. Retail sales are very volatile on a monthly basis, and the EC’s consumer confidence index for August points to annual sales growth of about 1.5%. What’s more, the boost to growth in consumers’ real incomes from previous falls in energy prices is fading. Accordingly, we think that the consumer recovery will lose steam over the rest of the year.