Hryvnia devaluation has dealt a serious blow to retail sales

Due to the rise in prices Ukrainians are more frequently coming out of supermarkets with empty shopping carts

Photo: Aleksei Solodunov

In September the volumes of retail sales hit another low in recent years, dropping to the level at the beginning of 2010. Retail sales turnover dropped by 5.3% in January-September 2014 in comparative prices versus the same period in 2013, reported the State Statistics Service. In monetary terms, however, goods turnover increased by more than UAH 13 bn having reached UAH 651.2 bn due to inflation, which has leaped to 16.2% since the start of the year.

Free falling

The SSS is registering a decrease in retail sales for the third consecutive month. The last time high rates of decline in retail sales were registered in 2009, when goods turnover fell by 16.6%. After that, the maximum decline in goods turnover was no higher than 4.7% and since the middle of 2010 it turned into growth. At the moment, the sales decline is mainly due to the situation in the Donbas region. Over nine months it reached 19.9% and 35% in the Donetsk and Luhansk oblasts respectively. The region is experiencing problems with payments of wages and pensions in certain areas in the ATO zone.

Indeed, retail sales sunk not only in the Donbas region. The considerable decline in consumption of goods is also being observed in the Volyn, Odesa and Mykolaiv oblasts and in the nation’s capital.

Devaluation of the national currency is one of the key factors causing the decrease in consumer demand. Since the start of the year the official hryvnia rate fell by more than 60% against the U.S. dollar. In addition, there are currently no evident factors that would facilitate the recovery of the consumer demand, primarily due to the absence of conditions for the increase of citizens’ incomes, says Senior Analyst at Concorde Capital Oleksandr Parashchiy.

Not the right mood

Ukrainians remain pessimistic about improvement of their well-being and growth of the country’s economy over the next year. However, the moods of consumers have not worsened primarily thanks to de-escalation of the situation in the Donbas region, reads the monthly survey of GfK Ukraine. «At that, the economic recession, instability on the foreign exchange market and in the banking system continued to have a negative impact on the expectations of citizens,» analysts at GfK Ukraine emphasized.

Fears about the possible rise in unemployment are one of the factors preventing citizens from making purchases, experts say. Last month, the Index of Possible Unemployment Dynamics calculated by GfK Ukraine surpassed indicators of August. In addition to that, Ukrainians are becoming more pessimistic as to the value of the national currency over the next three months.

Consumption is falling along with the retail turnover. The International Monetary Fund warned about this the past spring. According to the IMF forecast, this year consumption will drop 3.7% after a 5.6% growth in 2013. This is primarily due to the increase in tariffs of housing utility services. Ukrainians will have less money to purchase basic consumer goods this winter as heating bills will be 40% higher on average.