“It’s painful to be in the seventh quarter of a consumer recession,” Jan Bureš, Patria Finance’s chief analyst, summarizes the balance of the austerity period that began in the fall of 2021. Since then, families have been continuously cutting their budgets. Since the publication of the figures of the Czech Statistical Office for May, it is clear that the trend will not change even in the second quarter of this year.
It is true that the total turnover has for the time being increased by 0.2 percent compared to the first quarter, but this is entirely due to the sale of cheaper fuel. “Due to the weak results of the retail trade so far, we are forced to refine our forecast and increase our estimate of the decline in retail sales for the whole year,” confirms Martin Kron, an analyst from Raiffeisen Bank, who is disappointed by the CZSO report.
Household savings, which have no equivalent in Europe, are the main reason why the entire Czech economy is unable to get out of the recession, i.e. stop the decline in performance that occurred last summer. The trend did not reverse in the first quarter of 2023, when the economy, mainly due to households, remained at the level of the last quarter of last year.
Developments in the second quarter do not inspire great optimism either. From the perspective of Patria Finance, it is the May data on retail trade that represent “a negative risk for our estimate of economic growth in the second quarter”. At the same time, the investment bank’s experts have so far only allowed quarter-on-quarter GDP growth of a negligible 0.1 percent.
At the same time, Jan Bureš, on behalf of Patria, rejects the interpretation according to which the families threaten the economy as a whole with their investigation. “It’s the right response to price increases,” he emphasizes. Czech society has become impoverished due to imported inflation, and according to the economist, nothing can be done about it. At the same time, however, the Czechs maintained confidence that inflation would fall, and did not engage in reckless spending due to fears of further price increases. Also for that reason, despite all the effects of expensive energy and food, inflation is already approaching a single-digit level.
Upheavals in the retail market also signal a change in consumer behavior. According to stark statistics, compared to the last “normal” year of 2019, people saved the most in terms of money in the main items, specifically on food and household equipment, in addition to reducing spending on clothes, culture and sports. In percentage terms, purchases at markets, clothes and food fell the most.
However, the experience of pandemics has taught them to spend more money on medical devices in pharmacies or hygiene in drugstores. In addition, they buy electronics more often.
However, according to Jan Bureš, simple numbers hide a number of different stories. Specifically, lower spending on food indicates that people from lower income groups, including the lower middle class, really had to cut back on basic needs due to high inflation. The higher turnover in electronics, in turn, reveals that members of the middle class and upper middle class still have enough money to improve their standards, at least in those areas that they consider most important.
Skepticism persists
Experts expect wage growth to overtake price increases by the end of the year. This will fulfill the first of the important assumptions that the average citizen will start spending at least in the same volume as before the beginning of the crisis in 2019. Nevertheless, it is still not certain that the optimistic prospects will come true.
The Eurostat survey, which investigated how many consumers plan to make a major purchase in the foreseeable future, showed that the skeptical mood among Czechs has not changed in the slightest since last summer. Those who do not want to buy continue to outnumber those who are braver by 40 percent.
2023-07-11 14:30:43
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