Retail sales may stagnate for rest of year - analysts

Analysts expect retail sales to stagnate in Hungary throughout the rest of 2011 after the Central Statistics Office (KSH) reported both yearly and monthly drops in the sales on Wednesday morning.

Retail-sales volume dropped 0.5% in both calendar-adjusted yr/yr and a seasonally and workday-adjusted m/m terms in the country during the month of June.

Gergely Suppan of Takarékbank said rising loan-repayment installments and a tendency to increase savings among households has negated the slow rise in employment and real-term increase in net wages. Suppan predicted that retail-sales volume would fluctuate between +0.5% and -0.5% over the coming months, noting that the possible rises would stem primarily from a low base

Suppan commented that that the sharp rise in loan-repayment installments (due to the strengthening of the Swiss franc, the main currency of Hungarian forex-denominated retail loans) is likely to prevent the real yields and extra contributions of HUF 76,030 paid to 2.45 million former members of Hungary's private-pension funds this month from generating the previously expected increase in retail spending. The Takarékbank analyst added that retail consumption is therefore unlikely to contribute to an increase in Hungary's GDP this year as previously anticipated.

Dávid Németh of ING predicted that retail-sales volume would stagnate throughout the remainder of 2011, noting that that slight rise in demand for groceries in June does represent a positive development. Twelve-month volume rises in the months ahead could happen due to the low base.

Németh also said that rising loan repayments and economic uncertainty will likely prevent increasing real wages from spurring a rise in retail spending.