Spain retail sales decimated by VAT hike

Mon Oct 29, 2012 5:30am EDT
 
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MADRID (Reuters) - Spanish retail sales fell at their sharpest pace in at least six years in September as already battered consumer confidence took another hit from a hike in sales tax.

Calendar-adjusted sales fell 10.9 percent year on year, the National Statistics Institute said on Monday, after a revised fall of 2 percent in August.

The fall was the biggest since at least July 2006 and marked the 27th monthly drop in a row, reflecting an economy struggling through its second recession in three years and plagued by chronically high unemployment.

Spain has been in recession since the first quarter of the year and is not likely to grow again until late in 2013, according to official estimates that many economists consider optimistic.

Spain had the highest unemployment rate in the European Union in August - 25.1 percent - according to EU data.

That figure is expected to rise further as a large public deficit forces the government to implement deep spending cuts and tax hikes to convince nervous markets it can control its finances. It hiked sales tax on September 1.

"It's clear there are no signs the crisis is abating," economist at Nomura Silvio Peruzzo said.

"The headline figures show a sharp drop and indicate that domestic demand is not going to be anywhere near what the government is anticipating."

Spain's economy is expected to have shrunk 0.4 percent quarter on quarter between June and September, according to forecasts of preliminary data due on Tuesday, with sliding domestic demand a major factor.

(Reporting by Paul Day; Editing by Fiona Ortiz, John Stonestreet)