RO: Slower growth in private consumption
Retail sales were up +0.4% m/m and +3.1% y/y in April vs +3.4% y/y in March. Actual data came above our expectations of +2.2% y/y, but the slowdown continues in line with our scenario.
We think that retail sales will slow down to +2.3% in 2025 from +8.6% in 2024. Private consumption is pressured by talks about fiscal consolidation and slower growth in real wages. Households savings buffers should partially mitigate these risks.
Food sales increased +1.1% m/m and dropped -0.7% y/y, turnover for non-food items dropped -0.8% m/m and grew by +6.7% y/y, while sales of car fuel increased by +2.3% y/y and +2.8% y/y.
Economic Sentiment Indicator (ESI) shows that consumer confidence improved in May. Households are optimistic about their financial and general economic situation over the next 12 months, but this does not translate into higher purchase of major items.
Retail trade confidence dropped in May according to ESI, as managers were more pessimistic about past and future business situation.
Labour market was mixed in the first quarter of 2025. The average unemployment rate rose to 6.0% in 1Q25, compared to 5.5% for the full year 2024, before dropping to 5.7% in April. The number of employees continued to grow in 1Q25, driven by hirings in services, trade, and construction. However, labour market trends in manufacturing remained weak. Real wage growth is slowing, and we see it close to 2.0% at year-end compared to +7.4% in 2024.
Consumer loans origination lost speed in recent months, suggesting weaker growth for non-food items going forward.
Households savings buffers, defined as the ratio of financial assets to GDP, rose marginally in 2024 after two years of decline. This decline was explained by the post-pandemic reopening of the economy in 2021-2022, when consumption ballooned. On a weak note, savings buffers are smaller in Romania compared to other CEE countries, and they are likely to offer only partial support to consumption should the labour market come under pressure.