Retail down substantially in October; future prospects grim
The retail turnover in October (seasonally adjusted data at constant prices) dropped 2.9% month-on-month. This relatively sharp drop has turned around the growth dynamic of the last five months. In all probability, it is not just an episodic drop and, as a result of both domestic and global events, the sales volumes could shrink in the coming months as well.
The October drop has resulted primarily because of the shrinking demand for furniture, household items and construction materials; a small contribution was also made by dropping sales of automotive fuel. Automobile sales volumes, however, posted faster growth in October (6.1% month-on-month), which are excluded from the retail turnover. With automobile sales included total retail has dropped only 0.7%.
As a result of these developments, the annual growth rate has dropped to +4.9% (in September it had reached 8.0%). With automobile sales included, the situation looks better: +12.2% (+14.0% in September).
For short-term forecasts of changes forecast changes in retail and consumption in the short-term, business and consumer confidence indices are usually used among others. Already a month ago, the consumer confidence index deteriorated sharply and now it is obvious that the October drop is reflected in the retail data. Yesterday the business and consumer confidence indices for November were published by the European Commission pointing to practically no month-on-month change.
It is important to note, however, that the surveys are conducted in the first half of the month, so they do not yet reflect the suspension of AS "Latvijas Krājbanka" operations on confidence indicators. This factor is likely to find reflection in the survey data of the coming months, so a further deterioration of confidence indicators could be expected in December. In its turn, it could provoke caution in spending. It remains to be seen how the population will use their recovered finances, a part of which is withdrawn in cash. Even though some of these accruals might be used for Christmas presents and holiday meals, the events affecting confidence domestically and the increasing uncertainty externally act to reduce the possibility that retail growth may resume in the near future.
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