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The peculiar nature of retail sales recovery


Although the strong increases in retail sales during past few months are a sign of recovering private consumption, it should be borne in mind that the expansion has been in large part due to statistical and one-off factors. First, the rapid growth in sales was supported by a low reference base. Second, the acceleration in retail sales is being stimulated by the prospect of VAT rises and of the abolition of favourable VAT treatment of passenger cars converted into light trucks effective from 1 January. This is reflected in mighty increases in sales registered in sectors such as motor vehicles, motorcycles and parts, or furniture, radio, TV and household appliances. Faced with the likelihood of price increases triggered by the rise in VAT rates as of 2011, consumers are bringing forward major purchases to avoid the impact. In the case of the latter category, sales are being additionally boosted by post-flood reconstruction efforts in some parts of the country, which drive up demand for home furnishings. On the other hand, this segment has enjoyed buoyant sales growth already since March. This could mean that those recent homebuyers who bought new homes at the height of the housing market but were later forced by the crisis to suspend purchases of furnishings, have concluded that the worst of the downturn has passed and started spending. Interestingly, sales of food, beverages and tobacco products have risen only marginally, and in real terms have in fact shown negative growth. The above factors should continue to stimulate retail sales until the end of the year, although the pace of growth in the November-December period will be partly tempered by a higher reference base. But this front-loading of consumer spending could have a negative impact on sales figures in 2011. Although the past several months have witnessed a consistent upturn in economic activity, leading to a steady improvement in the situation on the labour market, the rate of job and wage growth remains modest. This, together with continued uncertainty about the global economic outlook, means that the nominal rate of retail sales growth can be expected to reach approximately 7% in 2011.

Paweł Sionko
Construction Market Analyst, PMR

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