Energy Shock Dampens Consumption, Eurozone September Retail Sales Plunge

[Energy Shock Dampens Consumption, Eurozone September Retail Sales Plunge]

(1) Eurozone retail sales volumes fell sharply by 0.7% month-on-month in September, marking the largest drop since June 2024 and far missing market expectations of flat growth; August retail sales had risen by 0.4% month-on-month.

(2) The decline was triggered by oil prices climbing back above $100 per barrel in September, with Middle East geopolitical conflicts intensifying supply concerns, and surging energy costs hitting consumer confidence; retail sales in both Germany and France fell, dragging down regional domestic demand; French fiscal worries compounded by protest activity pushed consumer confidence in October to a 13-year low.

(3) Inflation and monetary policy: Eurozone inflation rose to 4% in September, double the European Central Bank's 2% target; the ECB kept rates unchanged, but markets widely price in a third rate hike this year in December. Tightening financing conditions are already showing effects, with mortgage demand contracting notably in the third quarter, further suppressing household spending.

(4) Economic duality: The unemployment rate remains at a historic low of 6.5%, and wage growth is expected to pick up in the first nine months of 2027, potentially supporting discretionary consumption and offsetting downside pressures from high prices and high interest rates.