Consumption growth ten steps ahead of industrial output

The turnover of companies operating in the retail sector rose by more than 27% in February, in comparison to February 2005, reveals data published by the National Statistics Institute (INS). At the same time, the increase in industrial output was only 2.9% in February, that is ten times lower than the consumption rise.

Retailers started 2006 with record revenues, and the pace of growth in the first two months of 2006 was comparable to the best period for retail revenues, which is traditionally at the end of the year and especially December. Another uniqueness is that the growth gap between consumption and output is at its highest in the last few years.

The INS figures show that consumers” pockets did not empty after shopping in December 2005. Moreover, the average pace of growth for the turnover in the retail segment was of over 26%, compared with the previous growth record, 17.6% registered in 2004 and 2005. “The main catalyst behind the growth is, at the moment, private lending, which exceeded the amount of cash the population has,” explains Dragos Paslaru, analyst of the Applied Economics Group (GEA).

Out of the two consumption components, the large liquidity played a bigger part last year, once the flat tax and the record wage raises left more money available to the economy, Paslaru says.

Last year also started with record growth in the revenues on the retail market. Then, however, the sales boom was due to the flat tax introduction. The reduction of the taxation of salaries and incomes of individuals as of January 1, 2005, left them with more cash to spend.

Consumer credit has recently replaced liquidity and continues to sustain a high demand. “Despite the efforts of the National Bank to contain consumer lending, it continues to be successful, especially due to the emergence of new lending instruments,” GEA”s Dragos Paslaru says. Such an example is the co-branded credit card, which sees commercial banks partner with retail companies to make it easy for consumers to get consumer loans. BCR, BRD and Raiffeisen, the biggest banks on the market, have such co-branded cards, which shows the scope of this phenomenon.

“Now that the NBR has managed to deal a blow to the credit a consumer could take only by producing an ID, this indebtedness instrument (the co-branded card i.e.) may take the lead,” Paslaru concluded.

As for the low growth pace in the industry, it is a good enough reason to be concerned, Paslaru says. In his opinion, the industrial output slowdown is responsible for the relative recoil of the economy that is now being felt.

Industrial output growth in the first two months of 2006 amounted to 3.5% compared with the same time last year. It increased by a mere 2% in 2005, the poorest result of the last few years.

“The increase in output in February maintains above our forecasts made more than one month ago,” says Ioan Ghizdeanu, chairman of the National Prognosis Commission.