The retail sales volume index in Romania increased by 4.9% y/y in February, from 11.8% y/y in January and 13.4% y/y in December, according to statistics office data. 

Private consumption faces a visible deceleration this year, after the 9.0% y/y rally in 2017, with a negative impact on budget revenues (and the budget deficit) but a positive impact on overall macroeconomic growth sustainability. The soft-landing scenario prevails at this moment, amid a moderate currency depreciation and the return to normal inflation figures.

While sales of food goods increased by 8.1% y/y, not losing much momentum from the 8.5% y/y advance in January (10.3% y/y in December), sales of non-food goods saw steeper moderation: to 4.9% y/y in February from 17.6% y/y in January. Sales of car fuels contracted by 0.4% y/y in February.

Households’ concerns related to their wages after the repeated changes in the taxation regime, their expectations regarding inflation, the exchange rate and interest rates, have visibly depressed the overall propensity for consumption. Their concerns were further supported through March when consumer confidence must have further deteriorated.

Under the baseline scenario, the higher inflation amid a more moderate rise in households’ incomes will prevent an impressive expansion of retail sales this year. This will in turn result in weaker budget revenues and a wider public deficit (possibly above the 3%-of-GDP official target) and debt. But the public indebtedness is still moderate (well below 40% of GDP) and the combination of exchange rate and price correction will eventually bring the macroeconomic balances to a more sustainable situation without a hard landing unless unexpected external shocks occur.