Hungary's sluggish May retail sales surprise analysts

Hungary's sluggish May retail sales surprise analysts
By bne IntelliNews July 5, 2019

Retail sales growth decelerated from 8.5% in April to 3% in May, the slowest annualised growth since February 2017, according to figures from the Central Statistics Office (KSH) on July 4. The calendar-adjusted data shows a 2.6% annual increase, a big negative surprise.

All three major categories tracked by KSH retreated. Food sales grew by 1% y/y in May, down from 4.7% in the previous month, lifted by Easter sales. Non-food sales increased by 4.8%, the lowest figure since 2016 and fuel sales were up by 0.8% y/y, which is also a seven-year low. Households are also increasing spending on market services, a key contributor to Hungary's stellar Q1 at 5.3% growth. In absolute terms, retail sales reached HUF1 trillion (€3.1bn) in May.

In the first four months, retail sales expanded by 5.8% y/y, with food sales rising 3%, non-food sales by 8.4% and fuel sales up by 8%.

Analysts are at a loss to explain the steep deceleration in retail sales in May. Recent wage data foreshadowed the drop partially, as public sector wage growth dropped below 10% and real wage growth slowed to 5% in April due to rising inflation.

The question is whether it is the start of a new trend or just a one-off blip, said analyst Peter Virovacz of ING Bank. The May retail data could be the first sign that the slowdown has arrived.

ING expects muted growth in retail sales in the second half, which will have an impact on GDP. One reason for this may be the increasing saving rate of households, which could dent households' willingness to spend more at shops.

Retail investors have bought more than HUF1 trillion of new retail bond in the first month, which exceeded all expectations. The debt manager reassured households that there is no upper ceiling in subscriptions as the buying frenzy continues.

Government programmes for families could have also played an impact in the sluggish growth, said the head of the retail sales association.

From July, the government is providing interest-free loans to married couples, which could be used as a down payment for buying homes in addition to subsidised home loans and a HUF2.5mn subsidy for buying large family cars. 

The measures are expected to give another stimulus to Hungary's fast-growing housing market.

Sales growth slowed in all segments, which reinforces the impression that the slowdown is a part of a pattern, Takarekbank said. The bank expects a 5.5% growth for the full year.