Hungarian retail sales growth eased in July, data showed, while Czech real wages declined at the sharpest pace in decades in the second quarter – giving further hints of an economic slowdown brewing in central Europe as soaring inflation scorches consumers.
Central Europe's economies are bracing for a rough second half of the year, which could even mean a fall into recession for some, caused by double-digit inflation rates that are hitting consumer demand and taking away a key driver of the region's post-pandemic recovery.
Inflation
With inflation in Czechia at 15.8% during the second quarter, wages were down by real 9.8% from a year before, the biggest fall in records going back two decades, the statistics office said on Monday. The nominal wage rose 4.4%.
"Not even double-digit (wage) growth in some sectors was enough to overcome the decline in wages' purchasing power," said UniCredit's chief economist in Prague, Pavel Sobisek, who predicted real wage growth would not reappear until early in 2023.
"The question is how an economic recession, which is knocking on the door, will have a say in wage development."
The central bank sees real wages falling by more than 12% in all of 2022.
The Czech bank has raised its main rate by 675 basis points since June 2021 but held it unchanged at 7.00% in August in the first meeting under new Governor Ales Michl, who has said rates were high enough and would stay there.
The central bank, though, has not fully closed the door on further rate hikes, and some board members have warned about excessive price growth. Michl said in a Twitter post on Monday that, to get inflation down, a wage inflation spiral had to be prevented.
For central Europe, the sharp fall in Czech real wages is a sea change. The region is used to almost continuous wages growth. Since COVID-pandemic lockdowns eased, consumers who built up savings have been a key source for economic growth.
Soaring Energy Prices
But soaring energy prices are cutting into disposable incomes, and governments are scrambling to provide help for households and firms.
In Hungary, some aid is due to end, and the impact will be seen in retail sales, which have been holding up better than elsewhere in the region. Data showed on Monday that retail sales growth had slowed to 4.3% year-on-year in July.
"Food and fuel price limits are expected to be phased out from the beginning of October," Erste Group Bank analysts said. "All-in-all, negative year-on-year (retail) figures are set to come from autumn onwards."
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