Good news on retail trade and VAT revenue

HUNGARY - In Brief 07 May 2024 by Istvan Racz

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Retail trade grew by 2% mom, 3.6% yoy (volume terms, sda basis) in March, meaning consumer demand is indeed picking up at last. Here is the fixed-base chart (volume terms, December 2010 = 100), and then the graph on percentage yoy changes (with real wage growth also presented) a bit further below (both from KSH data, of course): Part of the local press is presenting the news as 'massive positive surprise', referring to analyst views. Well, yes, maybe it is, to the extent that the analyst expectation for March was +0.8% mom only. But on the other hand, it has been broadly agreed within the analyst community for a while that once households have refilled their minimum desired cash reserves, they will start to buy more goods and services, using the opportunity offered by increasing real wage growth. So, yes, the March data is genuine good news in the sense, that what has been thought to be the logical course of future events is actually taking place. But we would not call it a 'massive surprise'.  On the positive side, let us draw the attention to the fact that fiscal revenue from the VAT, a critically important element of the local tax system, has been also improving month by month lately. In January, the central government's cash revenue from the VAT fell by 4.7% yoy, but then this improved to -1.2% yoy in the first two months, and further to +2.8% yoy in the whole of Q1. For sure, these figures reflect the tax paid after somewhat earlier turnovers (mostly in retail trade), because of the taxation lag of 60-90 days. So the upturn of retail sales in March is hinting at likely further improvement in VAT revenue at some point in Q2. For sure, one could legitimately ask tha...