RO: August VAT hike could trigger July buying spree

Retail sales dropped -0.5% m/m and grew by +2.7% y/y in May. Actual data came close to our forecast of +2.6% y/y.

We estimate slower growth for retail sales at +2.3% in 2025 vs +8.6% in 2024. Private consumption is pressured by fiscal consolidation and slower growth in real wages. Households savings buffers should partially mitigate these risks.

The increase in standard VAT rate to 21% (+2pp) and in reduced VAT rate to 11% (+2pp for food, medicines, water and +6pp for books, cultural services, thermal energy) as of August could lead to pre-stocking for some items and a temporary jump in retail sales in July.

Food sales increased +0.5% m/m and dropped -1.0% y/y, turnover for non-food items fell -0.2% m/m and grew +7.7% y/y, while sales of car fuel dropped -1.1% m/m and were up +1.2% y/y in May.

Economic Sentiment Indicator (ESI) shows that consumers were significantly more pessimistic in June. Financial situation of household deteriorated in the past 12 months according to the survey and expectations for the next 12 months were markedly lower. As a result, households are less inclined to make major purchases in the next 12 months.

Retail trade confidence dropped to -1.3 in June from -0.4 in May on weak past business situation and virtually unchanged future business situation.

Labour market is gradually weakening. The average unemployment rate rose to 5.9% in January-May, compared to 5.5% for the full year 2024. Local economy created 27,400 jobs in January-April 2025 (net increase) vs 41,300 in January-April 2024. Real wage growth halved over the past year to +3.2% y/y in April on persistent inflationary pressures.

The increase in new consumer loans has curbed in recent months, suggesting weaker growth for retail sales of non-food items going forward.