Retail sales have dropped, because Ukrainians are saving for the fear of unemployment

Photo: Konstantin Melnitsky

For the first time in four years the volume of retail turnover of goods fell in Ukraine. In January-July the retail sales in comparable prices sank 1% compared to the same period in 2013. According to the State Statistics Service, over the first seven months of the year the goods turnover was UAH 495.2 bn. Interestingly in monetary terms this indicator increased as in January-July of last year it amounted to UAH 476.5 bn. The difference of almost UAH 20 bn can be attributed to inflation, which reached 12% since the start of this year.

Forced economy

The last time the SSS fixed a decline in retail sales was in April 2010, when the economy began to recover from the consequences of the financial crisis. Over the last several quarters the growth rates of retail sales slowed down, but no decline was registered. Even notwithstanding the devaluation of the Ukrainian currency this past spring and the unstable situation in the Donbas region, the consumption of Ukrainians increased.

At the moment, the greatest decline in sales was registered in the oblasts in Eastern Ukraine — 12.2% in the Donetsk oblast and 19.6% in the Luhansk oblast, where the population is 6.5 mn. Not taking into account Crimea, this accounts for nearly a seventh of the total population of Ukraine. Incidentally, the State Statistics Service also registered a reduction in sales in the Volynska and Mykolaiv oblasts and in Kyiv. Furthermore, the rate of sales in the Kyiv oblast increased by 4.8%, which is the highest figure among all regions.

Economists are not surprised by such a situation in retail sales. «Together with the overall decline of the economy, the national currency devaluation and rising inflation force citizens to reduce their consumption,» Director for Economic Programs at the Razumkov Center Vasyl Yushchyshyn noted. The results of research of consumer moods conducted this past July by Gfk Ukraine confirm this fact.

After analysts noted a revival of purchasing power of Ukrainians in June, last month the desire of people to consume fell. «The optimism after the successful presidential elections was brought to nill by the bloody resistance in the Donbas region,» analysts of Gfk Ukraine noted. Furthermore, the company specifies that while long-term expectations of revival of the economy remain positive, Ukrainians are not hoping for the improvement of their living standards in the foreseeable future. Moreover, the greatest fear is that they will become unemployed.

«The fear of unemployment had the greatest impact on consumer moods of Ukrainians that earn less than an average income,» it was stated in the research report. In addition to that, Ukrainians fear further devaluation of the hryvnia, which they were not concerned about a month earlier.

Waiting for a miracle

In the context of negative expectations and forecasts people will continue to limit their expenses, Yurchyshyn believes. In the opinion of Director of the Analytical Department at Concorde Capital Oleksandr Parashiy, at this stage there are no factors that would help revive consumer demand. On the one hand, the analyst said there are no premises for an increase in people’s incomes. On the contrary, it is more likely that they will decrease as the new taxes are being introduced.

As a reminder, the Verkhovna Rada approved the introduction of a 1.5% war tax on the incomes of citizens until January 1, 2015. «Expectations of the Ukrainians may be influenced by the stability of the hryvnia and the stabilization of the situation in the Donbas region upon which the strengthening of the national currency also depends,» Parashiy summed up.

The second factor in the stabilization of the hryvnia exchange rate is the allocation of the second tranche of the IMF loan under the stand-by arrangement. As the Cabinet of Ministers announced the other day, it is quite likely that the IMF Council of Directors will make a final decision on this issue on August 29.