Euro zone May retail sales fall more than expected

By Darren Ennis

BRUSSELS (Reuters) - Euro zone retail sales fell further than expected in May, data showed on Friday, dampening hopes that an improvement in consumer spending might ease the recession.

Retail sales in the 16-country currency area fell 0.4 percent month-on-month, the European Union statistics office said, worse than the 0.1 percent drop expected by economists in a Reuters poll.

Sales fell 3.3 percent year-on-year, while analysts had expected a 2.7 percent decrease.

The data, which came a day after the European Central Bank kept euro zone interest rates steady at 1.0 percent, showed consumer demand continued to suffer from the worst recession since World War Two.

"There was further confirmation today, if any were needed, that domestic demand is not set to ride to the rescue of the euro area economy any time soon," Colin Ellis, economist at Daiwa Securities, said.

Nick Kounis of Fortis bank said: "These figures are a little surprising especially after good German numbers earlier in the week. One of the trends that we are seeing is strong car sales and these figures don't include car sales."

German retail sales rose for a third consecutive month in May, gaining 0.4 percent on low inflation-spurred demand.

"Now that there are some sorts of support measures from governments like extra child benefits in Germany, or the reduction in VAT for restaurants, consumption in total may benefit ... but overall the outlook for consumption remains quite weak," Citigroup's Juergen Michels said.