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Investing.com -- Eurozone retail sales fell 0.7% month-on-month in May, adding to signs of economic weakness in the second quarter of the year.
The decline in retail sales coincided with a 0.3% decrease in overall services activity in April, according to data released by Eurostat.
While retail sales had shown strength at the beginning of the year, with wage growth translating into increased consumer spending, May’s figures represent a significant setback.
The timing of holidays may have contributed to the monthly decline, but the overall trend has clearly weakened.
Despite the current downturn, there remains potential for a retail sales recovery as purchasing power continues to improve in the eurozone.
However, saving rates have been rising due to high uncertainty, and consumer confidence remains low, which could impact sales in European retail districts over a longer period.
The services sector also started the second quarter poorly, with the 0.3% decline in April primarily driven by significant drops in ICT and real estate activities.
Although the PMI for services showed some improvement for June, it indicated stagnation rather than recovery.
ING analysts said recent hard data showing weakness in the service sector supports their view that second-quarter GDP growth was likely negative.
This would represent a significant change from the strong first quarter and serve as a reality check for economic activity in the eurozone, where the overall trend continues to be sluggish.
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