Germany and France lead eurozone retail sales rebound

Eurozone retail sales bounced back more than expected in February thanks to strong growth in Germany and France and solid output elsewhere, but economists said the data suggested consumer spending growth slowed in the first quarter of the year.

Retail sales for euro currency area in February rose 0.7% month-on-month, according to data from Eurostat, after a weak start to the year beating the 0.5% consensus estimate.

This was an acceleration on January's performance, which was revised up to a positive 0.1% growth from the initial -0.1% reading.

Annual growth over February last year was lifted to 1.8% from the revised 1.5% the previous month and again higher than the consensus forecast of 1.0%.

A 0.9% increase for non-food products and 0.7% for food, drinks and tobacco drove the monthly gain, while automotive fuel sales for passenger cars fell by 0.7%.

Germany, up 1.8%, and France, up 0.7% were driving forces, while Portugal's 3.1%, Croatia's 2.8% and Slovenia's 2.3% rises led the way.

Strong textile sales were a key driving force, boosted mainly by aggressive discounting in France.

"This headline is welcome news following recent weakness and slowing real wage growth, but we struggle to come up with an upbeat quarter-on-quarter rate for Q1 as a whole," said economist Claus Vistesen at Pantheon Macroeconomics.

He predicted retail sales growth will have slowed to 0.2% quarter-on-quarter in Q1, from the 0.8% growth at the end of 2016, pointing to downside risk for consumers’ spending.

Jack Allen at Capital Economics said that with little sign that nominal wage growth is picking up, faster inflation this year will weigh on consumers’ spending power.

"So household spending growth is likely to be a little weaker in 2017 than last year," he said, but felt the high level of consumer confidence and firms’ strong employment intentions suggest that household spending growth won’t slow sharply this year.

"This implies that the spike in inflation and continued political risks have had little impact on consumers’ optimism. Meanwhile, indicators of firms’ employment expectations are also at high levels, so the labour market recovery should continue. So overall, we think that the euro-zone economy will continue to grow at a decent pace this year.