Heido Vitsur, expert at LHV, said in his comments on retail data for November that the rise in interest rates on term deposits in banks to to 4-4.5 percent has led to residents seeing saving as making sense again, causing a decline in consumption.
Statistics Estonia announced earlier this week that the turnover of Estonia’s retail trade enterprises totaled 876 million euros in November 2023, marking a reduction of 9 percent from November 2022 at constant prices. In November compared with October, the turnover of retail trade enterprises decreased by 1 percent. In the first 11 months of 2023, the turnover of retail trade enterprises decreased by 8 percent compared with the same period of 2022.
“The acceleration of the decline in retail sales in November manifests a combination of people’s uncertainty about the future, the impact of additional costs caused by rising interest rates, and the fact that the increase in average wages has by no means uniformly supported the recovery of consumption across the population,” Vitsur told BNS, noting that there are large numbers of those who are forced to consume considerably less than before.
According to Vitsur, it is also natural that, in a situation of uncertainty, the replacement of home appliances and other durable goods is postponed and purchases made on the basis of the emotion are not made, including purchases made by mail order and online.
As the central bank’s forecast for the current year, published at the end of December, was not encouraging, and since the increase in VAT, whether perceived or not upon each individual purchase, will nevertheless reduce the total purchasing power of the population, there is no reason to expect a change in the trend in retail dynamics in the near future, Vitsur added.
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