RO: Consumers become more cautious

Retail sales dropped -0.3% m/m and increased by +3.4% y/y in March vs +4.7% y/y in February. February data was revised upwards by the NIS to +0.4% m/m from -1.0% m/m.

We estimate a slowdown in retail sales growth to +2.3% in 2025 from +8.6% in 2024. Private consumption is pressured by fiscal consolidation, slower growth in real wages and political uncertainty. Households savings buffers should partially mitigate these risks.

Food sales were flat on the month and up +0.6% y/y in March, turnover for non-food items increased by +0.8% m/m and +8.4% y/y, while sales of car fuel were weak at -2.2% m/m and -2.3% y/y.



Retail sales lost speed according to quarterly data to +0.2% q/q and +4.0% y/y in 1Q25 vs +1.7% q/q and +9.1% y/y in 4Q24.

Economic Sentiment Indicator (ESI) shows that consumers were more pessimistic in April vs March. Households expect a deterioration in their financial position and in the general economic situation in the next twelve months.

Retail trade confidence went down in April according to ESI, due to managers pessimistic approach when it comes to future business situation.

Online sales, consisting mainly of non-food items, grew by almost +7.0% y/y in January and February 2025 vs +14.3% in 2024 as consumers became more prudent.

Labour market was mixed at the beginning of this year. Average unemployment rate was 5.5% in 1Q25, unchanged versus full-year 2024. Number of employees grew further in the first two months of 2025, while real wage growth slowed down.

Households financial assets as percentage of GDP dropped in 2022-2023 as the economy emerged from the pandemic restrictions and increased slightly in 2024. We think that households financial assets could partially cushion the negative effect of slower income growth, but extended weakness on financial markets makes these assets vulnerable.

Consumer loans origination lost speed in recent months from very high annual growth rates but remained strong. Credit standards were loose and interest rates for new loans in local currency dropped by 1.6pp in the past year due to ample liquidity surplus in the banking system.