RO: Political turmoil dampened consumer spending

Retail sales came in at -1.3% m/m and +7.8% y/y in December 2024. Actual data came below our forecast of -0.6% m/m and +9.1% y/y. The forecast error for the annual growth rate was also affected by data revisions for the previous month. Political turmoil at the end of last year seems to have had much more of a negative influence than we anticipated. Full year 2025 retail sales growth came at +8.6%, a strong acceleration from +1.6% in 2023, mainly on strong non-food.

We expect a deceleration in retail sales growth to +4.5% in 2025, though the risk balance is skewed to the downside due to ongoing fiscal consolidation and lingering political uncertainty at least in the first half of the year. This is the first evidence of hard data, confirming soft data releases that the political turmoil had a meaningful impact on the economy. January PMI and ESI surveys point to persistent pessimism in the economy. Households savings buffers should partially cushion the effects from tighter fiscal and income policies.

Food sales dropped by -2.0% in monthly terms but advanced by +1.0% annually in December. Turnover for non-food items decreased by -0.9% m/m and accelerated to +15.7% y/y in December from +14.9% y/y in November. Sales of car fuel grew by +1.7% m/m and +3.1% y/y.

Consumer confidence deteriorated significantly to -20.3 in January from -11.9 in December. Households assessed their past and future financial situation as worse. Intention to carry out major purchases at present and in the future deteriorated, with unemployment seen on the rise. Consumer confidence posted the fourth sharpest monthly drop on record in January.

Retail trade confidence improved to 7.9 in January from 5.7 in December on positive assessment of business situation over the past three months by managers. On the other hand, the expectations component declined slightly.

Consumer loans origination is currently rising fast, helped by an easing of credit standards and a drop in interest rates for new loans in recent quarters due to ample liquidity surplus in the banking system. This was reflected in strong non-food sales performance this year which increased by +14.8% y/y in 2024, the fastest advance in 15 years, accelerating sharply from 2.8% y/y in 2023. This was reflected in higher imports which offset most of the positive contribution to GDP growth from household consumption.