Retail performance in July not great, but also not terrible

On the radar

• In Romania, 2Q24 GDP growth was confirmed at +0.1% q/q and +0.8% y/y in 2Q24. The positive contributions of consumption and investments to the annual growth of the GDP were offset by net exports and inventories.

• Hungarian industrial output growth arrived at -6.4% y/y in July, below market expectations.

• In Czechia industrial output landed at -1.9% y/y in July.

• In Czechia and Slovakia July’s trade balance was at CZK -4.1bilion and EUR 205.8 million respectively.

• At 11 AM CET Croatia will also publish trade data.

• At noon CET, Serbia will end the week with PPI Index release.

Economic developments

We have a full set of July's retail sales data for the whole region. The beginning of the third quarter is not great, but it is also not terrible. Let's start with the good news. In Czechia, year-on-year sales growth outperformed expectations. Overall, the data affirm the ongoing favorable trends in the retail sector, primarily driven by a resurgence in household consumption. In Croatia and Slovakia, retail sales growth dynamics were solid in July as well. On the other hand, Julys' performance of the retail sector in Hungary, Poland, and Romania was a bit disappointing. Therefore, in Hungary, the recovery is likely to progress gradually due to the nearly double-digit positive change in real wages, although this increase might be somewhat hampered by the cautious behavior related to recent welfare losses, although this effect is diminishing. Finally, in Romania, although the growth dynamics decelerated in July, consumer confidence improved in August and remained above the long-term average. Romanian households are more willing to purchase big-ticket items in the next twelve months, and they are more optimistic about the general economic situation.

Market movements

In Poland, Governor Glapinski held a press conference on Thursday afternoon. He outlined the conditions for monetary easing to begin in 2025 which include stable inflation around 5% and a projection showing a downward trajectory. Although he hopes these conditions are fulfilled in March, he pointed out that the most likely timing is in the middle of the year. We understand from his statements that the first 25 basis point rate cut will occur at the meeting when growth and inflation projection is published, which is in March or July. Although Finance Minister Varga denied the information about the Prime Minister's plans to drop fiscal consolidation in the years to come and run a loose fiscal policy ahead of the 2026 parliamentary election, such a scenario casts doubt on Hungary's future fiscal stance. CEE currencies strengthened against the euro after the US data publication which showed that employment data missed estimates. The long-term yields declined the most in Czechia and Hungary since the beginning of the week.

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