Eurozone retail sales fall sharply in July, led by Germany

Consumer spending across the eurozone weakened in July, with retail sales falling 0.6% from the prior month, according to data published Thursday by Eurostat. The decline reversed an upwardly revised 0.2% gain in June and undershot market expectations of a 0.3% rise, raising fresh questions about the resilience of household demand ahead of the European Central Bank's expected rate hike next week.tradingeconomics+1

Germany Drags Down the Bloc

Germany Deutsche Börse AG accounted for the bulk of the regional weakness, posting a sharp 3.4% monthly drop in retail volumes — the steepest decline among reporting member states. Spain followed with a 0.9% decrease, while Italy and Poland both fell 0.3%. In contrast, Latvia (+2.5%), Cyprus (+2.0%) and Luxembourg (+1.8%) recorded the strongest gains.europa

The weakness was concentrated in non-food products, where sales fell 1.4% across the euro area. Automotive fuel spending declined 0.8%, while food, drinks and tobacco provided a modest offset, rising 0.4%. On a year-over-year basis, retail activity remained in positive territory — up 0.6% compared with July 2025 in the eurozone and 1.0% across the broader EU — suggesting demand is cooling rather than contracting outright.europa

ECB Rate Hike Still on Track

The soft retail figures are unlikely to alter the ECB's near-term plans. The central bank is widely expected to raise its deposit rate by 25 basis points to 2.50% at its September 10 meeting, according to a Reuters poll. Swap markets have priced in the move at near-certainty, driven by inflation pressures linked to elevated energy costs stemming from the U.S.-Iran conflict.global.morningstar+2

Analysts at Nomura expect the September hike to be "a done deal" but see the ECB pausing afterward, unless Brent crude pushes above $100 per barrel, which could bring forward additional tightening. TD Securities similarly anticipates "limited forward guidance," with the Governing Council sticking to its data-dependent approach.fxstreet+1

Broader Economic Picture

The retail slowdown comes against a backdrop of subdued but positive economic momentum. Eurozone GDP grew 0.4% quarter-on-quarter in the second quarter of 2026, while inflation reached 2.9% in July. Germany's economic outlook has improved on the fiscal side — the Ifo Institute recently revised its 2026 GDP growth forecast upward to 1.4% — but higher inflation expectations of 2.8% this year are expected to keep consumer spending restrained.interiordaily+1