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French and Spanish Spending Fall Short in Latest Slowdown Sign

Published 08/28/2020, 03:41 AM
Updated 08/28/2020, 04:27 AM
© Reuters.  French and Spanish Spending Fall Short in Latest Slowdown Sign

© Reuters. French and Spanish Spending Fall Short in Latest Slowdown Sign

(Bloomberg) -- French consumer spending rose less than forecast in July and Spanish retail sales continued to decline, a reminder that the strong rebound seen after the end of the coronavirus lockdowns could lose steam.

Spending in France increased 0.5% from the previous month, far below the 1.2% expected by economists. The figures came alongside a report showing the economy shrank 13.8% in the second quarter, unrevised from an initial estimate.

In Spain, retail sales dropped almost 4% year-on-year, in the fifth straight monthly decline. A lack of tourists because of the pandemic has been a huge hit to the economy, with the biggest decline in sales seen in holiday regions such as Mallorca and Ibiza.

Economies across Europe bounced back strongly once restrictions to contain infections were lifted, but the big question is the longer-term sustainability of the recovery.

A recent acceleration in the daily count of coronavirus cases in several countries is adding to worries and may keep consumers at home. It also increases the risk that governments will put in place more restrictions. From Friday, mask-wearing is obligatory on the streets of Paris.

The other major risk is unemployment. Governments spent billions of euros on measures to protect workers’ incomes and help businesses, but that aid won’t last forever, and job cuts could mount. That would also hit household confidence and could push people to hold on to savings accrued during lockdown rather than spend the cash.

The Bank of France estimates households put aside an extra 80 billion euros ($95 billion) by the end of July, and that figure will likely rise to 100 billion euros by the end of the year.

Figures due later on Friday are forecast to show a pickup in euro-area economic confidence in August. While that keeps the recovery moving in the right direction, the index is still well below its pre-crisis level.

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