Retail trade momentum remains high
The retail trade dynamics displayed volatility throughout 2018; however, the development of the factors affecting it was favourable. Unemployment continued to decline; in the first three quarters, the annual rate of increase in real net wages exceeded the one observed in 2017; also events dedicated to Latvia's centenary and the National Song and Dance Festival took place. Likewise, new, including world renowned retailers, entered the Latvian market. Such preconditions would allow to expect a strong boom in retail trade; however, beating of the result of 2017 (4.4%) should not be viewed as a benchmark, and the increase of 4.0% in the sector’s turnover at constant prices observed last year is only marginally lower.
In 2018, the average annual inflation reflecting a rise in the price level of consumer goods and services contracted in comparison with 2017 (inflation for goods was lower than for services), and the growth in real net wages was faster than in the previous year (7.3% in the first three quarters of 2018 as opposed to 4.0% in 2017). Thus, with the purchasing power growing faster, it is unlikely that a small rise in the price level could have hindered more ambitious retail trade growth at constant prices. Partly this may be on account of the still sluggish lending development that encourages households to build up their savings for making bigger purchases or to set aside funds for house purchase or furnishing (thus, at this stage these funds/savings do not flow into retail trade). Consequently, savings continue to build up despite low interest rates that discourage saving.
Meanwhile, despite the relatively small domestic market of Latvia, the retail trade sector still remains active. In 2018, construction or expansion of large shopping centres continued, while the plans of the discount supermarket chain Lidl in Latvian market started to take shape. Although the implementation of some of these projects might be more time consuming than expected, the sector will continue to experience changes in the second half of 2019 and 2020; besides, the new or expanded premises of the shopping centres will also contribute to the development of other sectors, such as entertainment and recreation, catering and public services. In a small market, this is most likely to include not only the expansion of the current market participants’ activities or entry of new traders, but also their movement. With the overall economic growth decelerating, in 2019 the sector’s activities would not be expected to result in retail trade growth exceeding that of the previous year.