Retail sales grew by robust 8.4% y-to-y in May. In first five months sales grew by more than 6%. In May, sales grew everywhere - food stores +10.9%, supermarkets +13.9%. Consumers even ignored high oil prices and boosted their sales of oil by 5% in real terms. As usual, the fastest growth was observed in transport and communication sales. Telecommunication sales jumped 28% y-to-y in real terms and 24.5% in nominal terms as prices of mobile phone tariffs collapsed. Transport sales grew robustly: road transport +20%, rail transport +28 and air transport even +33%.
Rapid growth in retail sales and service sales confirms growing optimism of Czech households. Even in 1999, amid growing unemployment and falling GDP, retail sales managed a 2% growth, as public sector workers spent their generous bonuses distributed by the fresh government. Given the fact that more than a quarter of labor force is on the government payroll, the Cabinet can play havoc with the wage growth. In 2000, unemployment stabilized and the government boosts about economic growth, supposedly confirmed by the rapid GDP growth in Q1/2000 (
see our July Focus for a discussion of the GDP numbers). Thus, we upped our forecast and believe that retail sales will grow by 5% in 2000.
However, a closer look at the data provides some warning. Productivity has been growing, but is the retail splurge backed by appropriately rising output? If not, trade balance would quickly deteriorate and external balance would be endangered again. We do assume a worsening of the trade balance to USD 2.8 bil. (from USD 1.9 bil. in 1999), but still faster domestic consumption may put this into question.
(Ondrej Schneider)