Retail trade: one of the engines of growth in 2015

Even though the data of the Central Statistical Bureau (CSB) indicate that the annual growth in retail trade in the fourth quarter was not that fast (2.4%), in the year overall, this branch has posted respectable success (+4.9%). At the same time, the branch had to battle, on the supply side, a price dynamic that was not very motivating (they were not rising).

The drop in prices meanwhile is motivating on the demand side. The desire of the population to shop is promoted both by the rise in income and the way various expenditure positions are developing. The rise in real net wages in the first three quarters of the year exceeded  7% and at the same time, expenditure on energy dropped substantially. The CSB data on income in the fourth quarter have yet to be summarized, but, for instance, the power expenditure position continued to contract. Both because of the drop in prices and slightly warmer weather (CSB data indicate that the average aerial temperature in the fourth quarter of 2015 was higher than in the fourth quarter of 2014), the expenditure of the population for the heating energy consumed has gone down. These savings may have ended up in retail trade at least partially.  

Price continued to be a motivating factor also in the purchases of fuel, although in this case, the saturation effect also played a role and thus, in the fourth quarter, the contribution of fuel retail to the overall retail growth contracted.

In the year overall, the growth of retail trade was primarily impacted by the sales of fuel as well as furniture and household appliances. Purchases of furniture and household appliances may have been fostered not only directly by the rise in income but also by a slow and gradual increase in number of purchases in the real estate market (full data on the year are yet to become available), which, parallel to a rise in income and drop in certain kinds of expenditure, may have been promoted by the so called housing programme.

Food sales in 2015 increased at a slower rate than in 2014, and in this trade segment too, the rather stable size of the market (the total number of population is dropping slightly and the increases in the number of tourists and the time they spend in Latvia are low) suggest that a substantial increase in physical consumption should not be expected.  In this segment, the trade branch could be a short-term winner from a slightly faster growth of prices, whereas in trade, the basis for real growth in trade could be improved quality.

The trade sentiment indicator in the fourth quarter dropped slightly, but as early as in? January the component of sentiment indicator, which characterizes the business activity expectations in the coming three months, slightly improved despite the worry of some traders that amendments to the competition law could impede trading. Yet in 2016, under the influence of such factors as the minimum age or tax policy, the rise in compensation could be slower than last year and the contribution of retail trade to the overall growth of the economy might not increase substantially.