In Q1-2023, Romania, Hungary and Slovenia had year-on-year retail sales growth higher than the European Union average. This trend demonstrates an encouraging overall shift in consumer spending across these countries. Poland and Slovakia were overwhelmed by the results, as both nations endured ongoing, per capita, real retail sales growth that was below zero. This economic divergence paints a picture of a two-parish region with very different economic landscapes.
Out of our four superstars, Romania was the clear leader in terms of retail sales growth, an indication of a strong consumer market. Hungary and Slovenia showed impressive results, outperforming the EU average. Recent retail performance statistics suggest these countries have turned the corner on overall retail performance. That’s a sign of a strong recovery from the Great Recession and a return of consumer confidence.
Regional Retail Growth Highlights
Czechia achieved the highest year-on-year growth in retail sales in the first quarter, which underlined its dynamic market ecosystem. In a similar manner, Croatia’s retail sector was in full boom, posting record growth numbers. These countries have long found ways to take advantage of increased positive consumer sentiment and buoyant markets.
Last week, Romania’s foreign exchange market was characterized by high stability. This strong report was a big factor in raising expectations for a strong retail sales report. On this front, the Romanian central bank was successful, with the EURRON exchange rate remaining under 5.12. This sudden shift put in place a supportive environment for consumer spending. The country witnessed a rebound with 10-year ROMGB yields. They ended the day at 8.21%, up from a high of 8.5% earlier this week.
Disappointment in Poland and Slovakia
Poland registered the worst results with real retail sales growth at -3.0%. This stands in stark contrast to the rapid growth occurring in neighboring Romania, Hungary, and Slovenia. This drop is a worrisome sign of ongoing pressures on consumer purchasing power and economic security. In a parallel fashion, Slovakia saw a decline due to increase in value-added tax (VAT) and lower nominal wage growth.
The strong economic activity could be strongly affected by the transactional tax introduced in Slovakia. Still, this will probably only make a difference in data for that second quarter, as it went into effect in April. This unfortunate reality needs to be a wake-up call for policymakers to step in and tackle the root causes hurting consumer confidence in Slovakia.
Future Outlook and Inflation Data
Central and Eastern European countries are experiencing a patchwork of retail sales developments. At the same time, Serbia is set to publish its April inflation figure, which could provide further insight into the regional economic landscape. Analysts are especially focused on what inflation will do to consumers’ ability to spend money and economic growth more broadly in the future.
Together with Romania’s heavy trade deficit of €2.836 billion reported on the month of March, this paints a rocky picture of the Romanian economic fabric. Even as the country basks in strong retail sales growth, the widening trade deficit signals underlying difficulties that threaten to pull down the nation’s economic prospects.