In August of this year, retail turnover in Latvia increased by 0.8% compared to August 2023, according to data from the Central Statistical Bureau (CSB). However, the situation varied across different product groups and categories. Food retail experienced a significant decline of 4.6%, marking the fifth consecutive month of decrease. On the other hand, non-food retail (excluding fuel) saw a 5% increase, continuing its growth trend for the fifth consecutive month. Automotive fuel retail increased by 0.6% compared to August of the previous year.
A notable increase was observed in online retail, which grew by 14.5%. There was also a significant growth in the sale of information and communication technology devices in specialized stores, with turnover increasing by 8.9%. Additionally, the trade of cosmetics and toiletries saw a 7.1% increase.
However, market and stall retail decreased by 12.6%, while turnover in non-specialized stores, mainly selling non-food items, dropped by 2.4%.
Comparing August 2024 to July 2024, seasonally adjusted data showed a slight increase of 0.3% in retail turnover. Food retail decreased by 1.4%, while non-food retail (excluding fuel) increased by 1.5%. Similar to the year-on-year comparison, online retail saw a significant increase (+8.6%), while the sale of household electrical appliances decreased by 2.3%.
Conditions for faster growth in the coming periods
As a positive factor for retail, inflation in Latvia remains at a low level, reported Kārlis Purgailis, a bank economist. In August 2024, the average consumer price level increased by only 0.7% compared to August 2023. The actual unemployment rate has not increased since the beginning of summer and remains at 6.8%. Moreover, the average wage continues to grow at a significant rate. Although the growth rate is slowing down, in the second quarter of this year, the average wage increased by 9.6% compared to the second quarter of 2023.
Additional positivity for consumer sentiment may come from changes in employee taxes initiated by the Latvian government starting in 2025. These changes are expected to result in most employees receiving a higher net wage after tax, thereby stimulating consumption growth.
Looking at external factors, it is evident that the eurozone economy in the third quarter has not been able to maintain the growth pace seen in the first half of the year. Sentiment in the third quarter turned negative, with increasing pessimism in the eurozone manufacturing sector and a deterioration in sentiment in the services sector, quickly fading the positive momentum from the Paris Olympics.
Overall sentiment among businesses in the eurozone continued to be dampened by a lack of demand. While orders have been declining in the manufacturing sector for some time, the services sector saw a decrease in new orders in September for the first time in seven months. The weakest point in the eurozone economy remains the German manufacturing sector, where in September, business negativity reached its lowest level in the past year. Given the weak business sentiment, investors are increasingly expecting the next ECB rate cut as early as October. This will have a favorable impact on borrowers with variable interest rates. Loans in the coming periods will shift to lower rates, thereby reducing payments for mortgages and leases for Latvian residents, which could also stimulate consumption growth.
In September, the confidence indicator in retail in Latvia, according to seasonally adjusted data, was 2.9, an increase of one percentage point compared to August. According to economist Kārlis Purgailis, the sentiment among businesses in both food and non-food retail, as well as fuel retail, is positive based on unadjusted data.