Emerging Europe consumption at highest since 2008

Emerging markets have been in the doldrums recently but one region, which had been hard hit by the eurozone crisis, seems to be getting ready for a brisk upturn now.

Consumers in emerging Europe are enjoying the “tax cut” that was delivered by lower oil prices and have increased their spending, various data show.

Analysts at Austrian bank Erste, a big player in emerging Europe, said that many countries in Central and Eastern Europe have seen consumer sentiment at the strongest level since 2009, and this has spilled over into retail sales.

London-based think tank Capital Economics noted that unlike in Asia, spending on fuel accounts for a larger share of overall spending in CEE, and this is something that may have boosted consumption in emerging Europe as oil prices fell.

Consumption Up in Emerging Europe

Consumers in emerging Europe enjoy the lower fuel prices. Source: Capital Economics

In Central and Eastern Europe, consumption grew at the fastest pace since 2008 according to the calculations of the analysts at Capital Economics, who say this bolsters their view that “consumer spending will be a key driver of growth across CEE over the coming quarters.”

In the Czech Republic, consumer confidence was one of the key drivers of the strong growth of retail sales ex-auto, which was at its highest level since 2008 in the first quarter, rising at a pace of 6% year on year, the Erste bank analysts said.

Sales of automotive fuel, IT equipment and online and catalogue sales were the main retail drivers.

In Hungary, retail sales increased by 6.4% year on year between January and April, with non-food retail trade and automotive fuel driving the growth. Erste bank’s analysts expect 6.2% growth in retail sales in Hungary for this year.

Retail sales in Poland increased by 3.4% year on year in the first four months in real terms, although the nominal data was distorted by deflation. Clothing and the press, as well as durable goods and other sales in specialised shops, led the growth.

In Romania, after a hesitant start consumer confidence hit the highest level in six years in the first five months of the year. Retail sales increased by 4.4% in the first four months, with sales of food and fuel increasing.

The Romanian government has recently cut VAT for food, a move that should increase disposable income, although a political scandal involving Prime Minister Victor Ponta – charged with corruption, a charge that he has denied – could dent investors’ confidence for the short term.

Eurozone members Slovakia and Slovenia still show negative figures when it comes to consumer sentiment, but the indicator is slowly improving in both these countries and Erste bank analysts expect retail sales to pick up there too.

Emerging Europe is closely linked by trade with the eurozone, and as the single currency area’s fortunes improve, the neighbours’ economies could speed up even further, with external trade complementing domestic demand.

Turkey is one notable exception, with markets there unsettled by the fact that the ruling party AKP has lost its parliamentary majority after 13 years in power.

However, over the long term this should deliver a more market-friendly environment. Many investors were afraid that President Recep Tayyip Erdogan would try to curtail the independence of the Turkish central bank if his party obtained a majority.

Another exception is Russia, which has been hit by the fall in oil prices and by Western sanctions, and which has plunged in a deep recession that is also affecting the countries in the region that depend on it, mainly the Community of Independent States.

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