Euro-zone retail sales turned out much weaker than expected in October, falling against the previous month and barely rising in annual terms, the EU's statistics office said yesterday.

Retail sales in the 13 countries using the euro fell 0.7 per cent month on month and rose 0.2 per cent year on year, Eurostat said.

September's retail sales - an indication of consumer demand - were revised 0.1 percentage point lower to a 0.2 per cent monthly rise and a 1.5 per cent annual gain.

From the available data, sales fell in all euro-zone countries in October. The biggest drop came in the zone's largest economy, Germany, where they dipped 3.3 per cent month on month.

Household demand was the main driver of the euro-zone economy in the third quarter, helping it grow by 0.7 per cent against the previous three months, despite a negative contribution from trade.

But a global credit crunch, dogging financial markets since August, has hit consumer and business confidence through higher market credit costs and is expected to slow growth next year.

The European Central Bank, which has been concerned that a tightening labour market may boost consumer inflation as more people have money to spend and some workers demand higher wages, meets on interest rates today. But economists expect it will not raise interest rates despite a spike in inflation well above its target of just below 2 per cent, because the expected economic slowdown should eventually ease inflationary pressures.

Separate data has shown, meanwhile, that US retailers' sales rose 2.5 per cent last month, starting off what may be the slowest-growing holiday shopping season in five years. Consumers scaled back purchases in the last week of November following Thanksgiving weekend discounts, the International Council of Shopping Centres and UBS Securities said yesterday, reporting preliminary sales figures. Target, Dillard's and Circuit City Stores lowered prices by as much as 50 per cent to lure consumers.

Shoppers spent less per person over the Thanksgiving holiday weekend than a year ago, the National Retail Federation reported. - (Bloomberg/Reuters)