After a relatively sluggish retail trade performance in early 2011, May and June saw a significant increase now accompanied by another month of strong growth.

Unlike in the beginning of 2011 when only durable goods retail grew, also consumer goods retail has now climbed, says Agnese Bicevska, economist at the Bank of Latvia.

Demand for cars, furniture and household appliances was mainly driven by deferred consumption. People made use of their previous savings while starting feel more safe about the future. This vividly shows stratification of residents’ well-being. The recently observed increase in the number of employees has widened the circle of people with steady income and provided more solid foundation for the industry and the national economic growth, the economist says.

She believes that rising demand for consumer goods is good news; however, positive signals are still weak. Recovery of demand for consumer goods is slow. Moreover, it can also be affected by the shadow economy, number of tourists and other directly unrelated factors.

Fuel sales statistics clearly show the huge impact of the shadow economy and it has nothing to do with car purchase boom. While car sales continue to grow rapidly (July’s monthly changes +8.5%), fuel sales have fallen again (by 3.1%). Surely, part of the automotive trade is linked to the re-export,and thus might not be displayed in the domestic freights, Bicevska notes.

Tourism also plays a role in boosting trade. In the 2nd quarter of 2011, Latvian hotels and other accommodation establishments serviced 287 thousand foreign visitors, which is almost one-third (31.2%) more than in the same period last year. Number of tourists from Russia has spiked significantly – 80%. Tourists do, of course, spend more on the hotel segment, transport and catering services, yet they also buy fuel, food, souvenirs and other goods.

The European Commission’s released confidence indicators for August show that it is down 2.0 points for traders, while the population’s sentiment is up 3.3 points.

In August, the economic sentiment index deteriorated in the Baltic States. Besides, the producers’ sentiment index has grown worse, confirming that we are not immune to European and global processes Europe. Most likely, this indicates a slow-down in external demand, which might later negatively affect domestic processes, including the trade.

The economic growth might turn out to be sluggish due to global developments, which are not giving grounds to forecast stable industry growth over the medium term. Yet, this year’s trade performance will remain positive due to an uptick in mid-year, the economist says.

The business news portal BNN already reported that, compared to the previous month, retail trade sales (at constant prices, excluding seasonality) rose by 1.8% in July 2011, while climbing 6.4% year-on-year.