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Slower retail sales growth in Q3


2012-11-04



Weakening economic activity and deteriorating labour market conditions are increasingly weighing down on consumption. In the third quarter of 2012 retail sales continued their slowing trend from the spring, and while the deceleration has been gradual rather than steep or sudden, consumer spending could move markedly into negative territory in the early months of 2013.

Another quarter of slowdown in retail sales…

After recording strong increases in the first three months of 2012, retail sales in Poland decelerated significantly in the second quarter (data from companies with more than nine employees). While both the impressive gains and the subsequent slowdown were strongly influenced by base effects, the deterioration of retail sales recorded since April is also a reflection of weakening economic conditions and waning consumption (in Q2 GDP growth in Poland slowed to 2.3% y-o-y, with private consumption rising by an even more modest 1.2% y-o-y). With the economy rapidly losing momentum and with difficult conditions on the labour market, even the stimulus provided by the Euro 2012 championship was not enough to keep retail sales growth at a high level.

In the third quarter economic activity decelerated further, which together with stagnant job creation and declining real wages made Poles even more cautious about spending. Although the scale of the slowdown recorded in Q3 as a whole was moderate (retail sales were up by 1.9% y-o-y at constant prices in July-September, compared with 2.7% y-o-y in Q2), in September retail sales declined in real terms (slightly, by 0.4% y-o-y) for the first time since April 2010, i.e. the time of the Smolensk plane crash and the national mourning that followed it. It is worth noting that while most of the main categories saw weaker sales growth in Q3, the most pronounced slowdown occurred in sales of motor vehicles, motor cycles and parts. A reverse situation obtained in textiles, clothing and footwear, where sales accelerated significantly in recent months.

Retail sales vs consumer confidence in Poland, January 2009-August 2013

Retail sales in Poland (y-o-y change at constant prices, %), Q1 2009-Q2 2013

… but the Q1-Q3 figure remains fairly strong

Despite the deepening slowdown, in the first nine months of 2012 retail sales grew by a solid 7.9% y-o-y at current prices, and by 4.1% y-o-y in real terms.

All the main branch specialisations saw nominal increases in sales in Q1-Q3, with the single exception of newspapers, books and other sale in specialised stores, where sales contracted by 9.8% y-o-y. The highest increase (up by 20.4% y-o-y) was noted in furniture, radio, TV and household appliances. This category has enjoyed very high rates of sales growth consistently since the beginning of 2012, and in Q3, when TV sales were no longer boosted by the Euro 2012 effect, it again reported a big increase only slightly below 20% y-o-y. A strong increase was also recorded in other retail sale at non-specialist stores (discount stores, supermarkets and hypermarkets), in spite of a high base of comparison. The discount stores sector has enjoyed particularly rapid expansion in Poland in recent years, benefitting from a shift in consumer purchasing behaviour and from its ability to offer products of rising quality at competitive prices, which is especially important during a crisis. Sales of solid, liquid and gaseous fuels were not far behind with a rise of 12.5% y-o-y in Q1-Q3, which however reflected sharply higher prices of these products. A solid increase (up by 8.9% y-o-y) was also noted in pharmaceuticals, cosmetics and orthopaedic equipment, though sales in this segment have slowed down markedly since the beginning of the year, primarily due to the coming into effect of a new Reimbursement Act. Sales of motor vehicles, motor cycles and parts grew by 7.7% y-o-y in the nine months to September, thanks to a very strong first quarter, which however gave way to weakness in the subsequent months. The value of sales of textiles, clothing and footwear increased by 6.8% compared with a year earlier in spite of a significant decline in prices. The 5.6% y-o-y increase in food, beverages and tobacco products is explained primarily by a Euro 2012 bounce and higher prices.

Retail sales in Poland by type of enterprise activity (y-o-y change at current prices, %), H1 2013

Although recent months witnessed a gradual easing of inflationary pressures, the consumer price index (CPI) has remained at an elevated level. As a result, in most of the main branch specialisations sales growth measured at constant prices was lower than at current prices. The difference was particularly stark in the case of solid, liquid and gaseous fuels, where sales went up by just 1.4% y-o-y if price increases are taken into account, i.e. 11.1 p.p. lower than the growth rate measured at current prices. The rates of sales growth in food, beverages and tobacco products as well as in pharmaceuticals, cosmetics and orthopaedic equipment are also significantly lower when price rises are factored in (up by 1.3% y-o-y and by 5.7% y-o-y, respectively). In newspapers, books and other items at specialist stores, meanwhile, the decrease in sales deepens to 12.4% y-o-y when measured at constant prices. Conversely, in textiles, clothing and footwear and in motor vehicles, motor cycles and parts the Q1-Q3 increases in sales were bigger in real terms than they were at current prices (by 3.9 p.p. and 1.2 p.p., respectively).

Retail sales in Poland by type of enterprise activity (y-o-y change at constant prices, %), H1 2013

Weak prospects for 2013

With deteriorating household finances, rising fears about job loss and considerable uncertainty about the future, the slight upsurge of optimism that accompanied Euro 2012 proved short-lived and consumer sentiment in Poland is now only marginally better than it was at the depth of the previous crisis (March 2009).

Indeed, with the anticipated further slowdown of economic growth in the months ahead, the situation on the labour market could become even worse, and is set to remain difficult throughout 2013 as well. Add to this tight access to bank credit and the downward pressure on Poles’ incomes of the government’s austerity measures, and it is clear that no significant rebound in consumer confidence or spending is likely in the near future. According to our forecasts, while retail sales growth should remain just within positive ground in the remainder of 2012, in Q1 2013 it could move firmly into negative terrain. We expect first clear signs of improvement to emerge only in the second half of next year, as the comparative base becomes more favourable and as the economy regains some traction after several quarters of considerable weakness.

It should be remembered, however, that the sales figures and forecasts presented here do not cover the entire retail market (the available GUS data are for companies employing more than nine people) and leave out small stores, which are a very important part of Poland’s retail landscape; the booming online retail market, direct sales, or open-air markets.

Paweł Sionko

Senior Economist, PMR

pawel.sionko@pmrpublications.com



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