Home Economy News Analysis-Central Europe’s shoppers still shell-shocked even as inflation ebbs

Analysis-Central Europe’s shoppers still shell-shocked even as inflation ebbs


© Reuters. FILE PHOTO: People walk past the sign ‘SALE’ on a shop window of the Adidas store in the center of Warsaw, Poland, January 4, 2024. REUTERS/Kacper Pempel/File Photo

By Gergely Szakacs and Karol Badohal

BUDAPEST/WARSAW (Reuters) – When a $500 Electrolux oven briefly went on sale for 1% of its list price in Hungary last week, within hours shoppers flooded the online store with thousands of orders.

But what looked like the bargain of the century turned out to be a technical glitch and neither the customers had any realistic chance to score such an improbable bargain nor the Swedish home appliance group can count on such exuberant demand.

“We expect weak consumer sentiment to persist in the European market in 2024 as consumers opt for lower prices and delay non-essential or occasional expenditure,” Peter Toth, head of Central and Eastern Europe South sales area at Electrolux, told Reuters when asked about the health of demand on the European Union’s eastern wing.

The reality across the region is that there are scant signs of a recovery in consumption that governments were counting on to offset weaker demand for exports from a stuttering German economy and pull the region out from last year’s inflation-led downturn.

Both the Czech Republic and Hungary slid into recession, while Poland avoided it by the narrowest of margins.

Just four weeks into the new year, the Czech government cut its 2024 growth forecast citing weaker-than-expected recovery in consumption, while the Hungarian central bank has issued a similar warning.

Even in Poland, which is expected to see the sharpest wage gains in the region this year, consumer spending was off to a mixed start in January after the gross savings rate dipped into negative territory in four quarters since the start of 2022.

While a jump in vehicle and car part sales and housing renovations lifted headline retail sales data above forecasts, economists at Bank Pekao said January was a “hopeless month” for clothing, while other durable goods sales also fell.

“We remain sceptical about the potential of the Polish consumer,” it said. “In our opinion, 2024 will be a year of saving rather than a consumption boom. Of the 7-8% real increase in income, Polish consumers will spend approximately half.”

Data published on Wednesday showed how a steady improvement in consumer sentiment since late 2022 stalled in February amid renewed concerns about Poland’s and households’ economic prospects.

“The relatively low gross household savings rate compared to other central and eastern European countries could have a dampening effect on the recovery of private consumption,” Fitch Ratings associate director Malgorzata Krzywicka said, while adding she still saw consumption contributing something to overall growth.


Despite some recent improvement, consumer confidence in the Czech Republic and Hungary remains weak, with grocery prices now close to those in the euro zone where disposable incomes are substantially higher.

These countries face the weakest recovery prospects in central Europe in 2024 based on the European Commission’s latest forecasts, which projected 2.7% growth for Poland, below Warsaw’s estimate for 3% or more.

Tomas Prouza, President of the Czech Trade and Tourism Association, expects a “selective rebound” in consumer demand in the second half, with Czechs still saving on basic necessities and splurging more on leisure and higher-quality goods.

“We expect the caution to remain until summer when people start seeing improved real wages,” he said.

A PricewaterhouseCoopers survey of Hungarian executives, which includes more than three dozen retail sector businesses, showed less than half of nearly 300 companies surveyed expected revenue growth in 2024, the worst result in more than a decade.

“I do not expect a real consumer boom in any of the CEE countries soon,” said Witold Orlowski, Chief Economic Advisor at PwC Poland. “The economic situation looks bleak and is likely to improve only in the second half of the year.”

Lukasz Kozlowski, chief economist at the Federation of Polish Entrepreneurs, said 2024 would likely mark “moderate recovery” in retail trade.

He added however, that the recovery faced some headwinds as the Polish government plans to reinstate next quarter a 5% sales tax on food suspended over the past two years, while borrowing costs may remain higher for longer.

Beyond the hard economic data, the psychological effects of the chronic weakness of Germany, Europe’s largest economy and the region’s by far the largest export market, could also affect consumer behaviour, a top Czech central banker said.

Pawel Ropiak, an economist at Polish lender BGK, said consumers may be cautious about spending more after double-digit inflation of the past two years depleted their savings.

“We can use every tool in the box to support the consumer: active fiscal policy, active monetary policy, dovish monetary policy. But if consumers do not want to spend, they won’t,” he said. “They just won’t spend.”

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