Romania’s record retail sale growth has come off the boil. The retail sales index increased by 6.6% y/y in Q2, a marginal improvement from the 6.4% y/y in Q1 yet only half of the record double-digit growth rates posted in the past two quarters of 2017 when it soared by more than 13% y/y, according to the national statistics office.

In broader terms, the retail sales in Romania return to more moderate growth after the public wage hikes last year and the food VAT cut in 2015 visibly pushed up private consumption. Further slowdown is expected on short term, although the growth rates will remain robust, most likely 1pp-2pp above the 3% potential (GDP) growth rate on long term.

The sales in the non-food stores increased by 7.3% y/y while the food sales eased to 4.7% y/y in Q2. The car fuels sales returned to more robust growth rates 98.3% y/y on average) in Q2, after the higher prices pushed the prices 0.5% y/y down in Q1.

In seasonally and workday adjusted terms, the retail sales index increased by 3.1% q/q thanks to the 8% y/y advance of the car fuels sales and certain improvement to 3.7% q/q of the non-food sales. Food sales contracted by 0.3% q/q.

The rising inflation and interest rates, beside the economic slowdown depressing consumer confidence, will further depress marginally the annual growth rates of the retail sales index.

The lending of consumer and mortgage loans (mortgage lending passes through to consumption to certain extent given old houses account for large part of the sales) continued at fast pace in Q2 despite rising interest rates and the government further increased the wages in the budgetary (health care) sector.

But such drivers will in the future with a negative impact on the retail sales. The rising energy prices will contribute as well to less impressive growth rates in the future, although the wages converging to levels closer to those in the European Union countries will keep an upward pressure on the private consumption over medium and long term.