TALLINN - Rising prices drove down June retail sales at Estonian stores by 7 percent compared to one year ago, with shoppers shelling out 4.8 billion kroons (307 million euros) on purchases.
Analysts consider that retailers have room to lower prices, but it is still early in the slumping economic cycle to expect such a move to turn around sluggish markets and re-ignite growth.
Hansabank Markets analyst Annika Paabut said that the drop in retail sales met forecasts as contracting domestic demand was reflected in reduced household expenditures. "The fast growth in prices has brought the consumers' capacity to spend to its limit, therefore the retail sales companies should consider implementing bigger downward price adjustments," she said.
Paabut said that households already had trouble covering their basic needs and that people were spending less, but more knowledgeably, as they've lowered expenditures on hobbies, durables and luxury items.
She said that the price level for several groups of products was clearly too high, and not just for clothing items. A lot depends on the trademen's desires, both the retailer and wholesaler, to maintain customer traffic and to reach sales targets, and reducing markups serves that purpose, she says.
LHV analyst Erki Kert says that retail sales figures have been sufficiently volatile so it's important not to draw too far-reaching conclusions on the basis of June numbers alone. He however pointed out that the June indicators clearly do support the trend in falling retail sales.
Although we can see a fall in prices in terms of some groups of articles, Kert said, the general price rise is a continuing problem for the consumer and against the background of a slowdown in the growth of wages it is still too early to expect any improvement in retail sales.
Food products recorded 3 percent lower sales year-on-year for June. Manufactured goods at the retail level saw a drop of 12 percent. Sales of computers and accessories, photographic equipment, sporting goods, fishing and camping gear, games, toys and other such products fell by 17 percent.
The areas which side-stepped weakness were in mail order, pharmacy items and cosmetics.
Across the Baltics economies are now slowing faster than expected, say analysts at the Scandinavian Danske Bank, with Estonia and Latvia possibly slipping into recession this year. The analysts say Latvian GDP will slow to just 0.5 percent growth this year, Estonia expanding at 0.8 percent, and Lithuania stronger at 4.4 percent.
