The decline in merchant sales indicates a more marked decline in the economy

Consumers continue to reduce in-store purchases. This is confirmed by recent statistics, according to which retail sales continued to decline significantly in August. Compared to July, people spent 0.7% in all major categories and after the seasonal adjustment for the fifth consecutive month.

The decline on an annual basis has therefore worsened and in August was -8.8%. The only clear exceptions remain sales in stores with pharmaceutical products (+ 1.3%) and in pharmacies (stagnation).

On the contrary, all other types of stores recorded a strong double-digit decline on an annual basis, led by clothing retailers (-15.1%).

The new numbers confirm our main scenario, which foresees the start of a recession in the Czech economy as early as the third quarter. However, they indicate a more significant decline in household consumption and therefore a slightly more marked contraction of the economy.

If the August sector sends the same signal, it is likely that we will be forced to downgrade the GDP decline of the third quarter of 2022 to below -1% (currently -0.8% quarterly).

GRAPH: Comparison of the trend of retail trade and household consumption
From 2015 to August 2022 it is a real index (2019 = 100) in points.

Source: Patria / CZSO

Rates separately

The weaker consumption dynamics are undoubtedly a factor that will strengthen the accommodating majority on the Bank Council in its determination to keep rates unchanged.

The bar for further rate hikes is however very high in the modified banking council. Therefore, central bankers would only move to raise rates further in the event of significantly faster wage dynamics or as a result of extreme pressure on the Czech koruna (for example, due to a real gas shortage during the winter). .

If nothing happens, the Board of Governors is likely to keep rates stable. And current retail data will fit neatly into his narrative of declining domestic demand …