Hungary’s retail sales grew only three times in monthly terms over the past 24 months, and only once in the course of 2009, in June (+0.2%) when consumer anticipation of a VAT hike as of July drove large crowds into furniture and household electronics stores.

The 12-m index ticked lower to -5.6% from -7.4% in Dec09, this can be attributed solely to the base impact, as household purchases remained on a declining trend.

Vehicle and auto part sales, not part of retail in the European statistical system, continued to decline in Hungary in Jan; sales volume 28.3% in Jan, less dramatically than in Dec09 (-44.3%). The reason for the improvement should be sought in the base effect - in reality, the shrinkage is continuous here, as well.

The decrease in households’ willingness to spend (or the size of their wallets) is clearly reflected by the fact that in the three-year continuous decline, the last quarter of 2009 was the most dramatic period in this regard.

Retails sales were down 5.2% yr/yr in 2009. One of the key factors in the shrinkage, i.e. limited borrowing opportunities, is likely to remain also in 2010. The question is whether a cut to the personal income tax rate will boost purchasing parity enough for this process to stop. We do not believe that is likely, though. Last November, the central bank (NBH) projected 3.0% yr/yr decrease in households’ consumer spending and the government pencilled in -2.5% in its Convergence Programme submitted to the EU in January."

Source: Portfolio Online Financial Journal