Compared to the previous year, retail sales in May decreased by only 0.6%. This is an unexpectedly good result, as trade fell by 9% in April, although the Covid-19 crisis was only eased in mid-May, and the state of emergency was lifted in June. In June, the situation in trade is likely to be even better, and population movements, as well as our customers’ credit card turnover data, suggest that in June there may even be a significant increase in trade compared to the previous year.
The resilience of domestic consumption to the Covid-19 economic turmoil this year is a pleasant surprise and suggests that the fall in GDP this year could not exceed 4-5%. However, trade is of course not all domestic consumption and the recovery in trade is much faster than in services, where there is still a significant decline compared to the previous year. The structure of consumption in trade has also changed significantly in recent months. Trade in construction materials, electrical goods and the Internet has grown very rapidly, while trade in sports and leisure goods has declined. On the other hand, the very limited tourism this year means that the situation is definitely much better for traders working for local customers than for those companies for which a significant part of the customers were foreigners.
May trade data confirm the first phase of this crisis is over. So far, the spread of the virus has been successfully contained and sound public finances, the location in the euro area and the low level of household overdrafts have mitigated the negative effects of the crisis. At the same time, it is clear that the economic crisis is not over. Unemployment continues to rise in June, the global spread of Covid-19 has not yet been halted, and part of the trade turnover now is likely to be deferred consumption. In the period from March to May, household savings of Latvian commercial banks have grown by almost 290 million euros, which is at least 200 million euros more than usual in this period. These savings are currently flowing into consumption. Unpleasant signals are also observed in construction. Although construction was not directly affected by the crisis, many companies have delayed investment as a result of the crisis, which could mean a further rise in unemployment in the second half of the year.
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