Hungary's Retail Sales Suffer, Industry Weakness Persists, and Household Purchasing Power Declines

In contrast with the food segment, non-food retailing dropped on a monthly basis, displaying a 0.3% retreat in the volume of sales. As for the detailed shop-based breakdown, the story remains largely unchanged compared to the previous months.

 

Those sub-sectors that continue to perform very poorly typically sell the products on which households are most willing to save, i.e. clothing, furniture, computer equipment and manufactured goods. The remarkable 22.1% YoY fall in the latter’s volume highlights the lack of domestic demand that Hungarian industry has been suffering from.

 

Another aspect that also reflects the deterioration in household purchasing power comes from the data on fuel retailing. Fuel prices fell in May, as reflected in the May inflation print, where motor fuel prices fell by 6.6% on a monthly basis. However, this time households were inattentive to price elasticity (lower prices lead to increased demand), as fuel retailing dropped by 1.5% MoM.

Over the past two decades, the last time such an event occurred, the economy either struggled with deflation (2015) or was in lockdown (2020). By event, we mean when fuel prices fell by more than 5% while the volume of fuel sales fell by at least 1% in the same month.

 

Retail sales volume in detail (2015 = 100%)

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Judging by the latest retail and industrial data, we believe that the performance of these two sectors will be very weak in the second quarter and that there is little prospect of any meaningful improvement in these two areas in the coming months. The biggest challenge to a significant turnaround remains the continued erosion of household purchasing power, which has been falling steadily for eight months. Recently-introduced mandatory sales promotions may provide some stimulus to food sales, but no real impetus is expected for non-food and fuel retailing as non-essential spending continues to be cut back.

As a result, we expect consumption to fall sharply in the second quarter and for the year as a whole. By contrast, agricultural production could be very positive, partly due to the favourable weather so far and partly due to last year's extremely low base. This could be just enough to pull the Hungarian economy out of a technical recession in the second quarter, offsetting the weak performance of industry and retail trade.