Retail turnover down in April
The retail turnover in April (seasonally adjusted data at constant prices) dropped 2.1% month-on-month, with the sales volumes of non-food goods dropping 2.8%, and food goods 0.7%. Year-on-year, the total retail turnover retained the rather substantial growth of 7.8%
Looking back at the first four months of 2012 we see that after the very rapid rise at the very beginning of the year, the following months registered a decline – the changes in March were still in small pluses, but they were almost unnoticeable against the background of drops in February and April. This dynamic was confirmed also by retail trade and consumer confidence indicators that in the last few months pointed to a rather substantial deterioration.
What can we expect in May? Will the retail turnover continue to go down or can we hope for a change of direction in the trade dynamic? The European Commission today published the confidence indicators for May, without giving cause for any certainty that trade could proceed more successfully. The retail trade confidence indicator in May has dropped 4.0 percentage points. The population confidence has improved by 0.1 percentage points, but that is minor compared to the drop in the previous two months. The changes in population's confidence and the propensity to consume or save do not exist in a space separate from developments in the economy. They are influenced by developments both in Latvia and the global economy.
Since the Government has made decisions directed at lessening the tax burden on the population, in this respect a gradual improvement in indicators and sales volumes could be expected, albeit not of an explosive nature. It is important to add that in the short term this may mean fluctuations in the trade data, encouraging people to delay purchases of durable goods to the moment when the VAT rate is reduced, i.e. after 1 July. It may not apply to purchases of commodities, because the gains would not be so great and it is much less possible to postpone purchases of these goods (particularly food).
On the other hand, dark clouds have yet again gathered in the south of Europe. Until now we had managed to fix the roof of the house and reinforce its foundation, which helped us find shelter from the global storms. Yet no engineer would take upon himself to guarantee that the roof will not leak if the stormy weather gets worse. In the case of a small and open economy, the ability of domestic demand to heat the economy is not inexhaustible. If the exporters begin to feel a drop in demand, it also puts a damper on the creation of new jobs and giving wage raises to the existing employees.