Monthly Bulletin July 2009 - Banque de France

ECONOMIC
AND MONETARY
DEVELOPMENTS
Output,
demand and the
labour market
Private consumption contracted by 0.5% (quarter
on quarter) in the first quarter of 2009. Recent
indicators suggest continued subdued consumer
spending in the second quarter of 2009.
However, data on retail trade (which makes up
around 45% of consumer spending) showed a
marginal improvement in April, when retail sales
increased by 0.2% compared with one month
earlier. Keeping in mind the volatility of this
series, the April increase was the first positive
monthly growth rate recorded since September
2008. The April increase in retail sales was
broadly based among euro area countries.
Despite the fact that consumer confidence rose
slightly in May, its persistently low levels are
consistent with weak consumer spending in the
second quarter of 2009 (see Chart 26).
Chart 26 Retail sales and confidence in the
retail trade and household sectors
(monthly data)
4
3
2
1
0
-1
-2
total retail sales ¹ ) (left-hand scale)
consumer confidence ² ) (right-hand scale)
retail confidence ² ) (right-hand scale)
40
30
20
10
0
-10
-20
Looking further ahead, consumption is projected
to remain subdued in the second half of 2009
on account of an expected further deterioration
in the labour markets. The recent marginal
improvements in retail sales and consumer
confidence, however, suggest some stabilisation
in consumer spending. The substantial falls in
commodity prices since last year have supported households’ real disposable income and spending.
Consumer spending has probably also been supported by the implementation of the fiscal packages
adopted in some euro area countries. The extent to which household spending will be stimulated by
the fiscal packages is, however, surrounded by great uncertainty. Indeed, the saving ratio in the euro
area has risen in recent quarters.
In line with the pattern observed during previous periods of economic recession, gross fixed capital
formation has been a main driver of the economic downturn. In the first quarter of 2009 gross fixed
capital formation declined by 4.2% (quarter on quarter). Box 5 provides a more detailed description
of the current retrenchment in investment.
Investment will probably continue to contribute negatively to economic growth throughout
2009. The continued weak outlook for growth in fixed capital formation reflects the expectation
that developments will be subdued in both non-construction investment (mainly assets intended
for use in the production of goods and services) and construction investment. The projected
contraction in overall domestic and foreign activity, lower profitability for firms and funding
constraints are factors that will probably weigh on non-construction investment. The same
factors are also expected to dampen construction investment. The ongoing correction of euro
area residential and commercial property prices also suggests subdued construction investment
in the future.
The outlook for investment is also surrounded by great uncertainty. The higher than usual level of
uncertainty mainly results from difficulties in assessing the effects of firms’ worsened financing
conditions and the subdued final demand expected in the quarters ahead.
-3
2004 2005 2006 2007
2008
Sources: European Commission Business and Consumer Surveys
and Eurostat.
Note: Data refer to the euro area including Slovakia.
1) Annual percentage changes; three-month moving averages;
working day-adjusted. Excludes fuel.
2) Percentage balances; seasonally and mean-adjusted.
-30
ECB
Monthly Bulletin
July 2009
49