Consumption the main growth driver in Romania as retail sales soar in 1Q19

Consumption the main growth driver in Romania as retail sales soar in 1Q19
By Iulian Ernst in Bucharest May 7, 2019

Romania’s average retail sales index calculated for the first quarter of the year increased by 8.4% compared to the same period last year, the statistics office reported.

It was the highest annual growth rate in the past five quarters and hardly a surprise after the net average wage soared by 14% year-on-year, in real terms, in January-February. Sales in Romania had decelerated to an average annual growth rate of 5.5% in 2018, but private consumption is likely to remain the main growth driver this year.

Concerns related to the government’s capacity to sustain further wage hikes on the one hand and rising interest rates (thus a higher burden of consumer and mortgage loan servicing) on the other hand hurt consumer confidence last year, pushing down retail sales’ annual growth to 3.2% in Q3 from above 13% in each of the last two quarters of 2017. 

Q1 sales figures indicate the promise of further higher wages in the public sector, a tighter labour market in the private sector and the populist rhetoric of the ruling coalition (that promised low utility prices) may have convinced households to return to shopping, consolidating the positive sentiment cast by Q4 figures.

Seasonally-adjusted sales increased by 2.3% quarter-on-quarter in Q1, on the top of another 3.1% quarterly advance in Q4 last year.

The breakdown of retail sales index, however, supports the hypothesis of further widening income discrepancies (among the highest in Europe): food sales increased by only 3% in year-on-year terms in Q1 (stagnating in March), while seasonally-adjusted food sales contracted by 0.2% in the quarter. Non-food sales (+11.7% year-on-year) and car fuel sales (+12.6% year-on-year) supported the overall retail sales index. Overall, the performance of the non-food sales is consistent with robust consumer confidence and a continuing increase in consumer lending.