Hungary: Retail sector posts a huge negative surprise

Latest retail sales data in Hungary caused a severe disappointment with the 2.6% year-on-year calendar adjusted growth posted in May. The slowdown itself is not surprising, but its extent certainly is. It is the slowest pace of growth since February 2017, and the data raises questions about the sustainability of the strong performance seen in the sector in the first quarter of this year. The latest numbers fit into the trend of a deceleration which started at the end of 2017.

So what's behind it? It seems the surprise is not due to one specific sector as all of the main shop types registered a significant slowdown. Turnover in food shops came in at 1.0% YoY, which is the least surprising factor since the end of the Easter-related frenzy. On the other hand, non-food shops posted a 4.8% YoY increase in turnover, the lowest figure since 2016. For example, sales dropped on a yearly basis in clothing, books, computer equipment and in second-hand goods. Moreover, the volume of sales in automotive fuel stations rose by only 0.8% YoY, a low pace not seen in the past 6-7 years. So we're looking for answers. All this could be down to the effect of the new retail bond, which might increase the savings rate immediately and harshly. However, more data is needed to verify this theory.