RO: Cracks appear in consumer spending

In January, retail sales were nearly flat on the month (+0.1% m/m), while in annual terms they lost speed to +3.2% y/y from +7.8% y/y in December. Annual dynamics was heavily influenced by a statistical base effect, as retail sales jumped by a staggering +4.6% m/m in January last year. Actual data came better than our expectations of +2.3% y/y.

We expect a deceleration in retail sales growth to +4.5% in 2025 vs +8.6% in 2024. The risk balance is skewed to the downside due to ongoing fiscal consolidation and political uncertainty in the first half of the year. Households savings buffers should partially cushion the effects from tighter fiscal and income policies.

Food sales were up +0.2% m/m and dropped -0.2% y/y, turnover for non-food items decreased by -0.7% m/m but managed to grow by +5.8% y/y, while sales of car fuel increased by +0.5% m/m and +1.2% y/y.



Consumer confidence increased to -17.0 in February from -20.3 in January, as households outlook for financial and economic improved from depressed levels seen in January. Nevertheless, people seem more prone to saving, given the high uncertainty, as major purchasing intentions were little changed.

Retail trade confidence rose to 8.5 in February vs 8.0 in the previous month. Stronger business expectations by managers offset weaker past activity and higher inventories.

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.

Romanian households still hold buffers of savings defined as the ratio of financial assets to GDP vs pre-pandemic levels, but savings declined after 2021 and are small when looking at other CEE countries. Holdings of cash and deposits as a share of GDP dropped close to pre-pandemic levels after a jump in 2020, bond holdings increased on heavy retail issuance by the MinFin, listed shares were up and households holdings of investment funds dropped. Households' growing investment in long-term instruments like insurance and pension funds is unlikely to smooth consumption in case of income loss since these financial assets are less liquid.