Eurozone retail sales fall 0.1% as Iran war hits fuel prices

Eurozone retail sales unexpectedly fell 0.1% in March, as the war in Iran sent fuel prices soaring and dealt a fresh blow to consumer confidence, clouding the outlook for the region's economy.

"The more meaningful takeaway is a few months ahead. Over a three- to six-month horizon following the shock, the outlook is not very good," Riccardo Marcelli Fabiani, senior economist at Oxford Economics, said.

The month-on-month decline reported by the European Union's statistics agency on Thursday fell short of the 0.1% rise forecast by economists in a Wall Street Journal poll and followed a 0.3% drop in February. The slip was driven by the largest fall in automotive-fuel sales since August 2023. The data comes as annual inflation in the eurozone accelerated to 3% in April, up from 1.9% in February, the last month before the conflict began.

The data puts the eurozone's expected 2026 recovery at risk, as the European Central Bank faces the difficult task of taming resurgent inflation without crushing already-fragile consumer demand. "What we are fearing is the combination of shocks: energy, food, and broader inflation all hitting at once," said Vera Jotanovic, chief economist at European retail and wholesale group Eurocommerce. "2026 was supposed to be a recovery year for retail. That recovery is now at risk."

Consumer Confidence Plunges

While the March data gives a first glimpse of the war's impact, analysts say the full effect is yet to be felt. Consumer confidence in the eurozone plunged in April to its lowest level since December 2022, a sign that households are bracing for a prolonged squeeze on their disposable income.

"Right now, it doesn't feel like there has been a significant change in European demand," said Adam Cochrane, a European retail analyst at Deutsche Bank Research. "This isn't like 2022, when there was a rapid...change in demand. Consumers seem a bit more prepared this time." However, he and other analysts expect spending to adjust more slowly than confidence, with the real strain likely to show from April onwards.

Retailers Feel the Pinch

Major European retailers are already flagging risks. Swedish clothing giant H&M recently cited risks to demand stemming from the war. German online retailer Zalando also posted Wednesday earnings before interest and taxes that fell short of expectations, prompting questions about consumer resilience.

"The results raise questions regarding the resilience of European consumer demand in the face of elevated oil prices," Stifel's Clement Genelot said in a note. While oil prices fell this week on hopes of a peace deal between the U.S. and Iran, offering a potential respite, economists are concerned that persistent energy shocks may have already left lasting scars on demand.

This article is for informational purposes only and does not constitute investment advice.