Slowdown broadening

The slowdown seems to be broadening to the domestic economy, not only in the periphery but also in the core economies. While activity in the industrial and external sectors has slowed further, surveys suggest that the services sector recovery may also be nearing its peak. The outlook for consumers is still grim. Retail sales are likely to have contracted further in Q2 as the effects of the fiscal squeeze, rising inflation, and weak wage growth intensify. This suggests that quarterly consumer spending growth is likely to have weakened in Q2. And May’s rise in unemployment and the falls in survey measures of hiring intentions, even in the core economies, suggest that conditions for consumers may worsen further.