Consumers hold back on spending

TALLINN - Managing director of the Estonian Association of Retailers Marika Merilai commented on the retail sales statistics in June, noting that retail sales have been in decline the entire year, though the fall has been smaller than during 2009, reports Postimees Online. “While retail sales in June 2008 exceeded 6 billion kroons (384.6 million euros), in 2009 the amount was 5.2 billion kroons and this year 4.8 billion kroons,” noted Merilaid.

She stated that there is optimism about the future. “Taking into account the developments in the economy as a whole, including exports on the one hand, and the state of individuals’ incomes and unemployment level on the other hand, as well as the low comparative base from the two previous years, we are hoping for a slight increase in retail sales in the year-on-year comparison to occur by the end of the second half of the year,” estimated Merilaid.

When speaking about the adoption of the euro, Merilaid stated that she does not foresee any price growth due to that factor. “The changes in prices on the small Estonian market have been affected by processes that occur on the global markets – the changes in the prices of raw materials, energy prices, etc,” she explained. “The price level also depends on how well all links of the supply chain of goods are able to re-organize their work to improve efficiency in the changed context of competition and input prices so that the end prices of products would not grow significantly and customers could make suitable choices,” she added.

The Ministry of Economic Affairs and Communications noted in its statistics, that although grocery sales for June have fallen, overall retail sales revenue has not decreased. The stores have instead compensated for the decline in consumption with higher prices, notes the ministry.

“From among major categories of stores, the decline in sales continues decelerating in the segment of grocery stores, falling by 3 percent in a year; at the same time, the decline in sales revenue generated by grocery stores has halted, staying on nearly the same level as last year,” stated the chief specialist of the economic analysis division of the Ministry of Economic Affairs and Communications Karel Lember.

He added that, therefore, the stores have been able to compensate the fall in sales volumes with higher prices.
Lember stated that for June, retail sales of textile products, clothing, footwear and leather products saw volumes fall by 3 percent in the year-on-year comparison. “At the same time, these enterprises were able to increase their sales revenue by more than ten percent in a year,” he pointed out.

SEB analyst Hardo Pajula says that the private sector is quite heavily indebted at present, putting consumers in a difficult position in maintaining spending. The global economic crisis and its effects on Estonia will continue to impact retail sales. Pajula says that “The recorded [Estonian] output declines have been the fastest in the world. But the same could also apply to the speed of adjustment, particularly to a downward correction in wages in salaries to restore the competitive edge against more inertial trade partners.”

He mentioned that currently, for Estonia, the most important income sources are VAT payments and payroll taxes. At the same time, according to the specialist, one of the key problems is that labor in Estonia is heavily taxed.
“To the extent that the worst contraction of retail sales occurred over the second half of 2009, we expect retail sales figures to start growing from the third quarter onwards, if only because of the base effect. Unless, of course, there is a further major adverse external shock to the system,” he cautions.