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A day ahead of European Central Bank meeting, figures show eurozone retail sales slide in Dec

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LONDON - Disappointing retail sales figures are likely to reinforce concerns at the European Central Bank that the eurozone economic recovery is failing to gain momentum at a time when inflation is stubbornly low.

A day ahead of the ECB's monthly policy meeting, official figures showed that the retail sales across the 18-country eurozone suffered their biggest drop in over two and a half years in the crucial shopping month of December.

Eurostat, the EU's statistics agency, said Wednesday that retail sales across the bloc fell by 1.6 per cent in December, more than offsetting the previous month's 0.9 per cent rise.

That was way worse than the 0.5 per cent fall anticipated in the markets and represented the biggest monthly decline since May 2011. The drop, which means retail sales in the eurozone ended the year 0.9 per cent lower than where they started, was broad-based, with the region's top-two economies faring particularly badly. Germany saw a sharp 2.5 per cent monthly decline while France posted a 1 per cent drop.

Retail sales are a major component of economic output across the region and the December figures may raise concerns that the eurozone recovery did not accelerate in the fourth quarter as many had anticipated.

On Feb. 14, Eurostat will publish its first estimate for economic growth in the eurozone in the final three months of the year. Most economists expect a modest improvement on the previous quarter's paltry 0.1 per cent quarterly growth, but with retail sales down 0.7 per cent during the October to December period, those forecasts may now be in doubt.

The figures will likely ratchet up the pressure on ECB officials to ease monetary policy further at their monthly meeting on Thursday in order to shore up the recovery. Analysts say the most likely outcome is a reduction in the benchmark interest rate to a record low of 0.10 per cent from the current 0.25 per cent.

A broad range of economic indicators have shown that the recovery in the eurozone is failing to gain traction.

A survey Wednesday from financial information company Markit reinforced that view. Though its purchasing managers' index — a broad gauge of business activity — rose to its highest reading since June 2011, it was lower than anticipated.

Markit said its composite PMI, which incorporates the manufacturing and services sectors, was 52.9 in January, up from December's 52.1 per cent but down on a preliminary estimate of 53.2 issued last month. Still, at just above the 50 mark that separates growth from contraction, the figure suggested a mild rise in activity.

As well as fretting about growth, the ECB has another headache — the possibility of a debilitating bout of Japanese-style deflation. At an annual rate of 0.7 per cent, consumer prices are rising at a far slower pace than the ECB's target of just below 2 per cent.

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