Romania’s retail sales index increased by 21.8% y/y in February, accelerating after the impressive 15.7% y/y advance in January, the statistics office reported on April 5.

Higher wages and low interest rates fully explain the high growth rates, which are, however, expected to ease in the second half of the year and again towards the end of the year on base effects. As wages were pushed up mainly in for low-wage workers (by hikes of the minimum statutory wage), the marginal rise in wages has nearly fully surfaced in sales.

Sales have been visibly driven by VAT rate cuts in June and January, by higher wages and employment and by lower propensity for savings at the prevailing low deposit interest rates. Notably, consumer lending has gained ground recently, contributing to consumer euphoria.  

Retail growth started to accelerate with the decision to slash VAT on food from 24% to just 9% in June 2015. This was followed by the lowering of the standard VAT rate from 24% to 20% in January. Wages have constantly increased in the meantime and the government hiked wages in the public sector towards the end of the year. The public payroll surged by 22% y/y in January-February.

The volume of consumer loans extended by banks in January-February increased by 66% y/y to RON2.2bn (€492mn). This is roughly one quarter of employees’ aggregated net wages cashed in January. Aggregated net wages increased by 15% y/y in nominal terms in January.

The outstanding performance of retailers, in January-February, might have been to some extent the effect of lower tax evasion. Specifically, small stores under-reporting their operations came under pressure during the past year and they have either improved reporting, or reduced their operations, losing market share to modern retail formats that are monitored more closely by the statistics office.

Food sales soared by 31.3% y/y in February, while sales of non-food goods increased by only 20.8% y/y. However, for some categories of non-food goods, the rise was pretty impressive: 41% for textiles and footwear, 37% for furniture and other household appliances. Car fuel sales increased by 8.7% y/y.