Hungarian retail sales give no reason to cheer

A weak June was followed by a similarly disappointing July, according to the latest retail sales data from the Hungarian Central Statistical Office (HCSO). The data came as a big negative surprise compared to the market consensus, but also slightly below our expectations, the most pessimistic forecast in the market. This means that after a decline of 0.2% in June, July brought a seasonally and calendar-adjusted 0.0% month-on-month figure. In other words, based on this data, sales volumes across all sectors have been essentially flat since April. Due to last year's low base, the year-on-year index did not change significantly from one month to the next. In July, therefore, the volume of retail trade was 2.5% higher than a year earlier (adjusted for calendar effects).

Over the past four months, the volume of retail sales has remained essentially around 1% below its average monthly level in 2021. Given the stagnation of recent months, we can no longer say that retail sales are expanding. In fact, the year-on-year indices have already started to show signs of a slowdown. All this means that our earlier view that economic fundamentals are weak and that only a one-off outperformance can temporarily paint a positive picture remains valid. And in recent months we have not even been able to count on this one-off effect in the retail sector. While retail sales tend to pick up significantly around major sporting events, we have seen no such boost this summer, despite a packed sporting calendar.

Looking at the details, it is clear that, surprisingly, food retailing was again the main drag on the retail performance in July. On a monthly basis, HCSO recorded a decline of 0.7%, which is surprising given that chain stores have been quite positive about their sales performance due to UEFA EURO 2024. While in June this negative surprise was offset by non-food sales, the same cannot be said for July.

The volume of non-food sales increased by 0.1% compared to the previous month. Within this, mail order and online sales fell particularly sharply (although this is not so surprising after the surge in the previous month). Sales in clothing stores also fell significantly. On the other hand, sales in non-specialised stores selling manufactured goods rose on a monthly basis, but the overall performance was still weak. Finally, fuel sales rose by 0.4% MoM in July, thanks to the sharp fall in prices at the end of the month. This ultimately saved the overall retail performance from stagnation.

All in all, a rather weak consumption performance is emerging at the beginning of the third quarter. Overall retail sales are still around 1% below the level of three years ago, which is clearly not a good start to the new quarter.

Continued high real wage growth and a generally strong labour market could provide grounds for optimism. However, the latter could easily be misleading given the importance of labour hoarding. Thus, despite the improvement in consumer confidence from its low point (October 2022), it still seems too low for household consumption to provide a meaningful boost to the economy. The uncertain economic environment, the need to rebuild reserves and household deleveraging (especially in personal loans) are the main concerns for consumers. The most certain positive turnaround in this regard may come in early 2025 when the Government Debt Management Agency will again make significant coupon payments to retail bond holders. Until then, the economy will continue to heal, but full recovery is still a promise of the future, not the present.