Statistical data for last December confirmed expectations of a continuation of the downward trend in retail trade, which began fifteen months ago. Retail trade, compared to the same month in 2008, decreased by 12.1%, while in the last quarter of last year it was 14.4%, indicating a continuation of strong GDP contraction – states the analysis of the chief economist of Splitska banka, Zdeslav Šantić.
Last year, retail trade for the entire year decreased by a significant 15.3%. The most significant drop was in the sale of motor vehicles (as much as 58.1%), which was one of the most important generators of consumption growth in the years before the crisis. There was also a decline in the consumption of products that fall into the category of ‘discretionary’ products, such as household electrical appliances (-17.3%), furniture (-11.5%), as well as clothing and footwear (-6.3%). Šantić expects a decline again this year, around 3%, and although this is significantly less, it will, along with the expected decline in capital investments, be the most significant obstacle to the recovery of the domestic economy. This year, the most significant impact on personal consumption will come from the labor market. Namely, the domestic labor market reacted with a certain time lag, so a noticeable increase in unemployment was recorded only in the second half of last year. The latest data on employment trends indicate an acceleration in the decline of employed persons, suggesting a continuation of the unfavorable trend in 2010. A renewed increase in employment is not expected before 2011, and even that will be burdened by a low degree of mobility and flexibility in the labor market, estimates Šantić.
At the same time, by the end of 2009, the real decline in net wages accelerated, a consequence of rising unemployment, the introduction of a crisis tax, and strengthening inflationary pressures. – Regardless of the structural weaknesses of the domestic labor market, the rise in unemployment is likely to create pressures on wage declines for most of this year. In the current circumstances, it is difficult to expect an early abolition of the crisis tax that would reduce pressures on net wage declines. However, the imbalance between expenditures and revenues of the central government budget will remain at a high level throughout this year, which will reduce the maneuvering space for fiscal policy makers. At the same time, the capacities of the tax administration do not allow for rapid and efficient implementation of new solutions in the tax system, which would aim for a fairer tax burden with fewer negative impacts on the economic activity of the private sector. The expected rise in energy and raw material prices should also result in a somewhat stronger increase in prices this year, regardless of the pressures on the decline of domestic prices of goods and services due to low demand.
