Hungary’s retail sales growth - adjusted for calendar effects - slowed in March compared to the previous month to 4.2% y/y, a report released by statistics office KSH on May 25 showed. The release confirmed a preliminary estimate from earlier this month.

The reading is significantly below the robust 6.6% expansion in February. However, in spite of the slowdown, shop turnover remains solid and has extended its recovery following a sharp slowdown in January. Retail sales in Hungary have been increasing since July 2013 on the back of a tightening labour market and resultant consumer confidence, and remain a vital driver for the economy.

Although the economy benefitted in the first three months of the year from a push by market services [including retail trade], the remarkable slowdown of GDP in Q1, which recorded a 0.8% q/q contraction illustrates that consumption is still not strong enough to fully counterbalance troughs in the industrial and construction sector. The March result left retail sales 4.3% higher on an annual basis across the first quarter.

On an unadjusted basis, retail sales in March grew 5.5% versus 6.7% in February. In specialized and non-specialized food shops, the volume of sales adjusted for calendar effects rose by 1.9%. Turnover increased 7.6% in non-food retail trade and 5% in automotive fuel retailing.

Retail sales are being closely watched across Central Europe due to consumption's major role in economic growth over the medium term. Analysts in Hungary forecast that rising employment, income tax reduction, net real wage growth - which came at 7.4% y/y in the first three months of the year - and low inflation will continue to provide a strong base for household consumption in Hungary this year.