Estonian analysts expect continued growth of retail sales

Photo: ANTS LIIGUS/PRNPM/EMF

Analysts of Estonian commercial banks believe retail sales will continue growing in coming months, with SEB Pank expecting growth of up to 5 percent and Swedbank and Nordea predicting a more modest growth.

The 4 percent increase in January retail sales is apparently related to price changes that occurred in that month including electricity price rise, SEB Pank analyst Ruta Arumae told BNS.

"Retail sales growth slowed down slightly at the end of last year and was smaller than previously at the beginning of this year as well. I think January's consumption is mainly connected with price changes in that month," the analyst said.

"The sharp rise in the price of electricity definitely put its stamp on overall consumption, leaving less money for other spending and probably making consumers more cautious about spending money on consumption," Arumae said.

In the first month of the year the discounts offered in the retail of clothing and footwear were among the biggest and the increase in apparel sales was above average, the analyst observed. "Bigger growth occurred also in the sale of household goods the prices of which also came down in January. The same applies to motor fuels. As to groceries, their prices rose markedly and the growth in consumption sank to merely 1 percent."

More generally the retail trade is supported by the gradual rise in real wages and recovery of consumer confidence at the beginning of the year, Arumae said. In the coming months the growth in retail sales is likely to remain around 5 percent, she said.

"Growth will continue but probably at a slower rate," chief economist of Nordea Pank Tonu Palm told BNS. Considering the higher reference base and the rise of housing costs clearly perceived by consumers at present, an annual growth rate of around 4 percent can be deemed satisfactory, he said.

"There is the risk that consumers will offset the perceivable sharper price rise by saving more in other spheres such as transport and eating out, which may cause setbacks," the analyst said. "Nonetheless, the income growth largely alleviates the situation at present."

The overall sense of security has improved to some extent in Europe including Sweden, Finland and Germany in recent months, Palm observed. "However, regarding real economy indicators like retail sales and manufacturing production there are as yet few signs of recovery," he added.

"Consumer confidence in Estonia has likewise improved in the last two months amid expectations of income growth, including a rise in the 12-month economic outlook. It now stands above the historic average," Palm said.

Besides wage growth consumption is supported by the moderate increase in demand on the labor market and super low interest rates. "A part of the population has seen a marked increase in savings in recent years. Along with the improvement in economic outlook, this factor should start supporting the retail market in the form of purchase of durables, with car sales one of the gainers," Palm said.

Nominal annual growth in retail sales was 6.7 percent and growth at constant prices 4 percent in January while in comparison with December retail sales decreased by a fifth, Swedbank's chief economist Tonu Mertsina observed in his comment to BNS.

"A month-on-month decline of similar magnitude occurred in January of the previous year. A drop in retail sales in the first month of a year is usual, arising from end-of-year sales and holiday shopping, as well as irregular bonuses and extras paid in December which boost purchasing power," Mertsina explained.

In January consumption was curbed by the increase in housing expenditures due to the rise in electricity price and food price rises, on the one hand. "On the other, this was compensated for by the slowdown of the rise in motor fuel prices and the drop in public transport expenses due to free public transport in Tallinn," the analyst said.

Swedbank expects potential consumption volumes to grow in the short term, but at a decelerating rate, under the combined impact of a slowing increase in employment and the growth in real wages. "The consumer confidence indicator has been improving since last December. Consumers are gaining more confidence as economic sentiment strengthens and it is increasingly believed that households' financial situation will rather improve over the next 12 months," Mertsina said.

On the other hand, the retail trade confidence indicator has deteriorated somewhat this year and price rise expectations for coming months have deepened, he observed.

Retail sales of goods by retail trade enterprises grew 4 percent at constant prices in January compared to the same month of the previous year, reaching 337.6 million euros, Statistics Estonia said on Monday. Compared to December 2012, retail sales decreased by a fifth at constant prices. According to seasonally and working-day adjusted data, retail sales increased half a percent compared to the previous month.