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European shops see sales crash

BRUSSELS, Belgium (AP) — European shops saw trading crash in November, the EU statistics agency said Tuesday, adding to signs that the economy may be slowing.

But the president of the European Union insisted the bloc still had the momentum to keep expanding despite higher inflation and a credit crisis that may curb the region’s recent surge.

Retail trade in the nations that share the euro shrunk 1.4 percent from a year ago — the biggest annual drop since records began in 1997 — and 0.5 percent from October, the EU statistics agency Eurostat said Tuesday.

The shopping slowdown comes as year-on-year inflation over the last two months runs at its highest level since euro cash was introduced in 2002, with people paying more for energy and food — holding back the domestic demand that could lift the economy.

The European Central Bank so far has shied away from doling out the usual cure for overheating prices by raising borrowing costs. It needs instead to encourage banks to keep lending in the wake of a financial market crisis that made them fearful of taking on new risks.

The full impact of the credit crisis on Europe’s economic growth is still uncertain, but tighter borrowing conditions could hit hard by making it tougher for companies to get a loan and homebuyers from securing a mortgage.

We are certainly aware of the fact that 2008 will be one of the more difficult years for the EU, Slovenian Prime Minister Janez Jansa — whose country holds the EU’s six-month rotating presidency — told reporters at a news conference at Brdo Pri Kranju in Slovenia.

It would be unrealistic of us not to expect certain problems because of the issues that we have witnessed in the financial markets, because of rising price of oil and food and the impact of these price increases, he said.

But he said strong growth over the past two years and the creation of millions of new jobs provided a new momentum, a new basis for further growth.

The problems … I believe will not hinder this strategic step forward that the EU economy has made, he said, speaking through an interpreter.

EU officials claim that part of the economy’s recent energy came from reforms such as more flexible working conditions and moves to knock down national barriers between the EU’s 27 nations.

Both the EU and the euro currency zone have cut unemployment to record lows that stayed on hold in November, despite signs of slower growth in the last three months of the year.

Analysts are divided on whether the weak retail sales data suggest Europe might enter a steeper downturn.

Bear Stearns economist David Brown told Dow Jones Newswires that signs of lower domestic demand — one of the engines for growth — should push the ECB to cut euro area interest rates instead of talking about a hike as it has so far, in stark contrast to central bankers in major trading partners Britain and the United States.

The greater risk now is growth stalling badly in 2008. This poses a very strong argument to cut rates soon, he said.

But for Holger Schmieding at the Bank of America, the extent of an overall slowdown was still unclear.

Not all is doom and gloom, he said, pointing to strong German factory orders and predicting a gradual rebound in consumption this spring.

Over time, consumers get used to higher levels of oil and food prices. They are likely to open up their purses again at least a little bit later this year, he said.

The ECB is expected to keep interest rates on hold at 4 percent when it meets on Thursday. E-mail to a friend

Copyright 2008 The Associated Press. All rights reserved.This material may not be published, broadcast, rewritten, or redistributed.

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January 8, 2008 - Posted by | Uncategorized

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