Retail sales in the eurozone fell in June, reflecting the enduring hit to consumer confidence as the war in Iran drags on.

The decline in overall sales volumes of 0.3% on month is the second in the four full months since the start of the conflict. Economists polled last week by The Wall Street Journal instead expected a 0.1% increase in June compared with May, after a 0.4% rise in May.

The sales decline was driven by a 1.1% drop in Germany and 0.5% in France--the eurozone's two largest economies. Sales of food, drinks and tobacco fell by 0.5%, for nonfood products by 0.4%, while automotive fuel sales grew 1.5% after oil prices retreated on easing tensions in the Middle East.

The eurozone economy outpaced U.S. growth in the second quarter, though June's retail-sales data reinforces the view that consumption wasn't a major driver, ING economist Peter Vanden Houte said.

Consumption momentum slowed after the conflict erupted, as consumer confidence sank in April to its lowest level since 2022 following an increase in energy prices. However, much of that slowdown was due to uncertainty prompted by the war, rather than having less purchasing power due to rising inflation, a European Central Bank bulletin said this week.

Higher-income households chose to pare back discretionary spending in response to the high uncertainty, with lower-income ones hit harder by the higher energy prices that made up a larger portion of their spending, the authors said.

That could allow consumer spending to improve should the Strait of Hormuz reopen and energy prices cool further. Consumer confidence rose for a third straight month in July from its multiyear low--though it remains weaker than its February level--indicating the return of robust consumer spending will likely depend on the development of the war.

Retail sales rose 0.2% over the three months through June, following a 0.3% increase in the first quarter, suggesting consumption generally held up despite lower real incomes on the upswing in inflation, Capital Economics economist Harry Chambers said in a note.

"While the data aren't yet available, this suggests that households chose to save less rather than spend less in response to the energy crisis," he said.

However, for a more substantial boost to consumption, households' savings ratio, which remains above prepandemic levels, would have to decline more sharply, ING's Vanden Houte said.

"Some improvement can be expected, but a genuine consumption boom looks unlikely at this stage," he added.