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Economy in Brief

Retail Sales Remain Weak in Zone; G-20 Remains Weak in the Knees
by Robert Brusca  April 22, 2013

Retail sales growth in the Eurozone contracted in February after rising in January and dropping in December. Over three months, retail sales are contracting but they are contracting at a slower rate than they had been over six months. Over six months, the sales drop accelerated its pace compared to 12 months. The current three-month growth rate for sales volume is less than the contraction pace from 6 and 12-months, perhaps indicating that there is some moderation in the pace of sales contraction in the Eurozone. That would be welcome news, but it's too soon to tell if it's real.

The 10 countries in the table represent mostly Monetary Union members, some European Union members and one nonmember (Norway). Trends show that sales are declining in five of the countries over the recent three month interval, and that all of those countries with declining sales are in the Eurozone. The Zone has proved to be a confining straight jacket for some members. Sales are declining rapidly in Austria, at an 11% annual rate over three months, at a 4.2% annual rate in Spain over three months, at a 2.5% annual rate in Italy over three months at a 1.7% annual rate Denmark over three months and at a 1.2% annual rate in France over three months. These figures compare to the decline of a 0.7% annualized rate over three months for the Zone as a whole.

The three non-common-currency member countries in this table, the UK, Sweden and Norway, show sales volumes expanding and accelerating over the recent three month period. Among the seven zone members that are listed in the table, only two show sales increases: Germany at a 2.4% annual rate over three months and Portugal at a huge 41% annual rate over three months.

The Eurozone continues to flounder with austerity dogging the region. Topical data on progress in Europe for debt and deficits shows mixed results. The deficits relative to GDP are showing progress in the aggregate as they have improved compared to the previous year as the zone-wide deficit fell to 3.7% of GDP from 4.2% in 2011. Overall debt continues to be a problem as government debt increased to 90.6% of GDP from 87.3% of GDP in the prior year. One of the issues is that as the European nations begin to corral debt and deficit growth they have not been able to maintain GDP growth and so making progress relative to GDP becomes more difficult since the growth of debt may slow but since GDP is shrinking the net result (the ratio result) measures less rather than more progress.

Eurozone consumers continued to have difficulties. Denmark reported retail sales data for March which showed a decline in retail sales and declines in consumer confidence.

In the wake of the G 20 meeting, in which the G 20 apparently has decided to allow Japan to pursue its domestic monetary policy objective without complaining about the exchange rate effects in markets, has left Europe without a solution. Some complain that the euro exchange rate is too high for countries of the South, but, of course, if the exchange rate were appropriate for the countries of the South it would leave countries of the North with tremendously competitive export sectors. With such differences in competitiveness settled in across the Zone the zone, the ECB has a difficult time-an impossible time-in trying to get the exchange rates right. Despite the fact that Europe might prefer a lower exchange rate, Japan is the country that is pursuing one. The fact is that it's United States that has not run a current account surplus in over 25 years and whose current account surpluses as a percentage of GDP continues to be far too high for comfort. But for now the US is growing better than the rest of the developed G-20 crowd so it is not being mooted for foreign exchange help- yet structurally it probably needs it at least as badly as does Japan.

There is no consistent international monetary mechanism at the moment. There is no overarching view of exchange rates or what they should be and how they should operate. There is no sense of assigning exchange rate values based on current account positions internationally or even in trying to ascertain and restore rates to parity. There is instead chaos and a complete lack of any overview or sense of interdependence among trading nations. But it's clear that the impact of exchange rates on various countries continues to be significant in that large imbalances continue to persist over long periods of time between and among countries that are engaged importantly in international trade. That such imbalances, left unattended, may once again create significant mischief is an obvious flaw in the current policy regime which all but fails to exist, let alone to take on the big issues. So what good is the G-20 at all?

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