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Euro zone retail sales fall sharply in October

BRUSSELS (Reuters) - Shoppers in the euro zone cut back on spending by the biggest margin in six months in October, economizing on everything from clothes to medical goods and offering little hope of a consumer-led recovery from recession.

The volume of retail trade in the 17 countries using the euro fell 1.2 percent in October from September, the biggest drop since April, the EU's statistics office Eurostat said on Wednesday. That was worse than the 0.1 percent fall forecast by economists in a Reuters poll.

In a further sign of the difficult times for euro zone households, September's reading was revised down to -0.6 percent from an earlier -0.2 percent estimate.

The euro zone's economy, which generates about a fifth of global output, slipped into recession in the third quarter of this year and is expected to contract for all of this year, its second shrinkage since 2009, and a recovery is still far off.

"We think that the fourth quarter will be the worst in terms of growth," said Evelyn Herrmann, an economist at BNP Paribas.

"With periphery countries contracting and even the core going through a cyclical downswing at the end of this year, euro zone gross domestic product is likely to fall by some 0.4 percent (in the last three months of 2012)," she said in a note on Wednesday.

Households in the euro zone have been struggling since the global financial crisis of 2008/2009, constrained by disposable incomes that grew only during the brief recovery of 2010. That weakness has fed back into the downturn, and the bloc's overall output is expected to shrink at least 0.4 percent this year.

Business surveys show an easing in the rate of contraction in euro zone services activity in November, with the shrinkage in manufacturing moderating to a seven-month low, helped by the European Central Bank's plan to buy the bonds of governments that has quietened concerns about a euro zone break up.

But government spending cutbacks aimed at bringing down record budget deficits are having a big impact on the real economy, economists say, and with euro zone unemployment at a record high with nearly 19 million people out of work, retail trade is suffering.

Spending on food, drinks and tobacco fell 0.8 percent in October and shopping for non-food products including clothing, furniture and medical goods dropped 1.4 percent.

Motorists in the euro zone also economized on fuel spending for the third month running because of high oil prices.

Despite tepid global demand for oil as economies worldwide feel the impact of the euro zone debt crisis, Brent crude rose to near $120 a barrel in August and remained high for much of September and October. Brent traded around $110 a barrel on Wednesday.

For further details of Eurostat data click on: http://epp.eurostat.ec.europa.eu/portal/page/portal/eurostat/home

(Reporting by Robin Emmott; editing by Rex Merrifield)

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