Prediction confirmed: retail trade down in February

The retail trade turnover at constant prices in February, seasonally adjusted data,dropped by 1.2%. In the commentary for previous month I predicted that in February, after a growth of a couple months, a drop could be expected in February as the Russian guests who spent their Christmas holiday in Latvia would have gone home and the purchasing power of the locals would be limited by the increased heating bills resulting from the cold winter. The consumer and business confidence indicators likewise showed a sharp deterioration. The prediction has thus been confirmed. It was also confirmed by the structure of retail goods, as the drop was primarily determined by the demand for non-food items.

The drop in retail trade volumes notwithstanding, the trade branch overall could be doing better: the demand for automobiles has grown and rapid growth of late has been observed with wholesalers who account for almost half of the branch turnover.

Year-on-year (compared to February 2012), the rise in Latvian retail trade has been 5.7%,which remains a decent performance compared to the turnover changes in other European Union countries. In the sales volumes of European Union countries a drop in the annual growth rate has been observed since September and the financial problems of Cyprus can damage the already fragile stabilizing trends of the European economy.

Even the problems of a small country like Cyprus give rise to a whole chain of cause and effect. Although the agreement on the international loan and the necessary painful solutions provide a more secure groundwork for the future, the limited access to own deposits will act to reduce the purchasing power and demand for the goods produced in other countries of both the locals and tourists. Cyprus is not an important trading partner of Latvia, so we seem to be almost exempt from its drop in demand. However, the overall deterioration in confidence of both business and consumers will impact expenditure and accrual decisions also elsewhere in Europe, and that is a more important risk that may have a negative effect also on the demand for Latvian products.

It is difficult, albeit not impossible, to see positive aspects in this situation. The Latvian producers and businesses have time and again demonstrated their ability to adjust: to gain advantage over competition less seasoned in crises and to use the advantages of the lower value of the euro to increase their market shares. The newly won markets, on the other hand, provide profits for local producers and traders as well as salaries and jobs to employees.