Retail trade grows slowly: can we consume even more?
According to the seasonally adjusted data of the Central Statistical Bureau (CSB), turnover at constant prices grew slightly faster than in previous quarters, i.e. by 1.0% quarter-on-quarter, yet the year-on-year growth rate reached 2.0% year-on-year (working-day adjusted), which is slightly less than last year's average.
Just like at the year-end 2016, a substantial positive contribution of automobile fuel trade is observed, whereas the contribution of food trade remains uneven and without reaching into positive territory. At the same time, the proportion of trade that takes place outside shops and stands, including by post or on the Internet, continues to grow. This is one of the factors that could make the interpretation of retail trade data more difficult in sub-groups.
The turnover indicators of retail trade enterprises characterize the consumption trends of consumption by the population only to an extent. Even though the confidence indicators of both consumers and retail trade are improving and one of the reasons could be the rise in compensation in the public sector, positive, moderate inflation has returned to Latvia. Under its impact, the increase in real purchasing power is not likely to accelerate this year and the possibilities for retail trade growth (in real terms) on account of domestic consumers will be slightly limited.
According to the European Commission data, consumer confidence has been improving since December. The retail trade confidence indicator has also reached the level of last spring. Thus, confidence indicators in both the retail trade business and among consumers are higher than around the turn of the year when there was much negativity because of some possible tax changes and oil prices had resumed rising, which could have worsened the assessment of household purchasing power.
Consumer outlook in March and April might have improved both by the stabilizing of energy prices and by the dying down of passions around the impact of the liberalization of the natural gas market immediately after it was opened. Since the beginning of the year, rising compensation has been the case in some parts of the public sector and lending to households is on the rise (both for consumption and housing purchases). Based on this, the tendency to consume could be expected to increase, and that is behind, in part, the rise in optimism among retailers.
The positive outlook of the retail trade business is borne out by sizeable projects being launched at the beginning in the year. Rimi took the first steps to expand its logistics centre and IKEA has started developing its store in Latvia. The start or expansion of the operations of these businesses is still in the future and, in the coming periods, these projects will have more impact on construction growth. Along with the wave of positive confidence in the first quarter of the year one of the largest Lithuanian furniture merchants, Berry, opened its store in Latvia. This too confirms the positive expectations of retail traders have toward Latvian consumption growth as they observe the growth in lending and trend toward purchasing or refurbishing housing.
A similar view of growth trends is possibly behind the construction of the thematic furnishing and design quarter Decco Centrs, which was started in April. At the same time, it points to enterprise strategy in a small, limited market: concentrating services in one location would increase the flow of consumers. Yet it could also mean a relocation of consumption from other, similar shops or shifting of resources from other expenses to refurbishing one's home. Allocating finances for non-essentials may well indicate improved material well-being, yet the small domestic market always requires new solutions and keen competition among the existing market participants.