Friday, 19 September 2014

Sharper drop for retail sales in July points to lingering recession


Retail sales continued heading south for yet another month with the contraction rate accelerating to 14.2 percent in July from a revised 7.7 percent in June, according to Hellenic Statistical Authority (ELSTAT). A similar drop (14.0 percent) was also evident in retail volumes.

The picture remains rather mixed in the various sectors with some segments such as furniture, electrical and household equipment, pharmaceutical products and cosmetics and department stores still deep in the red and exhibiting a double digit (18-26 percent) decline. On the contrary, for several sectors like food, beverages and tobacco, books and stationery and retail sale not in stores, the negative trend has smoothened out to a mid-single digit drop of 4-5 percent.

Monthly volatility in the automotive fuel sector seen earlier in the year is persisting, with the fall in January, February and April peaking to 16-22 percent, largely owing to a slump in heating oil consumption, following a sharp rise in the respective excise tax. Nevertheless, a modest decline (2-4 percent) was recorded in March and June, while May surprisingly posted a small rebound (1.9 percent). July performance was in between posting a decrease of 12.0 percent.

It is noteworthy that unlike previous years, the rate of drop in retail sales and volumes has broadly converged as of 2012 and almost fully aligned in 2013. Note that retail sales have retreated on average by 7.2 percent in 2011 and 11.0 percent in 2012, with the decrease in volumes standing at 10.2 percent and 12.2 percent respectively.

Despite an improvement in leading indicators such as economic sentiment and PMI, hard data such as construction activity and retail sales still provide recessionary signals for the Greek economy. The ongoing decline in retail sales also results from the continued contraction of Greek households’ disposable income, with the latest figures pointing to a 6.2 percent in the first quarter of the year, following an 8.3 – 13.6 percent drop in the preceding three quarters, according to ELSTAT.

What is also important is that unlike time deposits, savings balances - fully reflecting households’ savings - increased over the June - August period, with the average monthly inflow at c400 million euros over this 3-month period. Our understanding is that Greek households prefer to put the little spare money they have in their banking accounts rather than to resume consumption.