Trade volumes in Latvia have returned to the pre-crisis level, bank analysts admitted to LETA, commenting on the July retail sales data published on Friday.
Mārtiņš Āboliņš, an economist at Citadele Bank, told LETA that the Latvian economy continues to recover from the Covid-19 shock, and sustained domestic consumption is one of the reasons why the economic downturn in Latvia this year will be significantly smaller than expected at the beginning of the crisis. “Trade volumes in Latvia have already returned to the pre-pandemic level, and the mood of traders is now significantly better than that of other industries,” he said.
Āboliņš mentioned that in July, the trade in household electrical goods grew the fastest in retail trade, the sales volume of which increased by 27.1% compared to July of the previous year. Trade in cultural and recreational goods also increased by 12.3%, while trade in the Internet increased by 8.6%. Meanwhile, trade in footwear and clothing has decreased by 3.2%, while the volume of trade in markets has decreased by almost 10%. “These trends in retail in recent months can also be seen in the bank’s customer payment card transactions, but it is important to remember that sales are not all consumption and are not doing so well in the service sectors at the moment,” he said.
Āboliņš also pointed out that the risks of Covid-19 proliferation in trade are definitely lower than in entertainment and other service sectors, the activity of which is still significantly limited. For example, public spending on airfare, entertainment and hotels is still more than 30% behind, and people have shifted part of their consumption from services to goods. With the recovery of the services sector, consumption is likely to shift again to services.
“The situation in trade is definitely significantly better now than in the economy as a whole, and retail trade in Latvia is likely to grow even slightly this year. This is also one of the reasons why the decline in gross domestic product (GDP) in Latvia this year will be smaller than expected and could be in the range of about 4-5%. However, there are growing signs that the initial rapid recovery phase of the economy is over and improvements are slowing. Unemployment remains above 8%, wage growth has slowed and economic sentiment in Europe in August shows only a modest economic recovery in our main export markets. At the same time, the number of Covid-19 cases in the Baltic States has started to rise again, posing new risks to both trade and economic development in general. ”
SEB banka’s macroeconomic expert Dainis Gašpuitis told LETA that the rapid recovery of retail sales and exceeding the previous year’s level is not a surprise, despite the significant decline in activity in the economy, which is concentrated in certain sectors.
He noted that the situation in the labor market has deteriorated, but not dramatically, including bank surveys show that entrepreneurs are also in no hurry to reduce wages.
“With declining consumption opportunities and growing caution, the population’s focus has shifted to retail. The data show that growth has been driven by adaptation to new conditions for spending time at home, purchasing and renewing electrical appliances, but the shift in emphasis on entertainment and leisure has led to the purchase of leisure and entertainment equipment. The increase in the purchase of medical goods also indicates efforts to strengthen health, ”said Gašpuitis.
He pointed out that it is no wonder that the retail sentiment has already moved out of the negative territory in August and shows 1.8 points, while other sectors are still close. Consumer sentiment also jumped to -12.8 in August, although positive sentiment is still a long way off, as positive consumer sentiment is relatively rare.
“Retail sales will continue to grow, although the pace may slow down a bit. Much will depend on the mood of households in the autumn and winter months and on whether we will be able to avoid renewing restrictions, ”said Gašpuitis.
Swedbank’s senior economist Agnese Buceniece also told LETA that retailers seem to have recovered from the impact of the Covid-19 crisis in a relatively short time.
She noted that Swedbank’s payment card data and surveys on consumer and retailer sentiment point to a slight increase in retail sales in the coming months. In the first two weeks of August, Swedbank’s payment card sales turnover, which includes not only shopping at retailers, but also services, grew slightly faster than in June and was about 9% higher than last year. The turnover of cash withdrawn from ATMs continued to decline, but the decline became smaller.
“Although the household sentiment indicator in August still lagged behind the pre-crisis period, it reached the highest level since the beginning of the crisis in Latvia. The improvement compared to April was observed both in households’ plans to make large purchases and in the assessment of the financial and economic situation over the next 12 months. There was also a positive trend in retail sentiment, which continued to improve in August for the fourth month in a row. At present, the mood in the industry, excluding the sale of cars and motorcycles, is at the long-term average. This indicates that the “old” or “normal” times in retail trade will gradually return with a tendency to slowly increase sales volumes. However, a change in trends could lead to new developments in the spread of coronavirus, which is still a risk for the industry to take into account. “
It has already been reported that the turnover of Latvian retail enterprises in July this year, according to calendar adjusted data, at constant prices has increased by 3.8% compared to the corresponding period of 2019. Among them, retail trade of food products increased by 1.7%, while retail trade of non-food products, excluding retail sale of automotive fuel, increased by 4.4%, and automotive fuel – by 6.8%.