March retail trade sales expanded 0.8% y/y, the first positive print for the year. It was, however, not enough to drag the sector into positive territory for the quarter, and we expect retail sector GDP to contract by -3.5% q/q in 1Q17, shaving half a percentage point off GDP. Retailers of food and beverages, pharmaceutical goods, furniture and hardware all made strong contributions, growing 14.8% y/y, 7.2%, 8.2% and 4.3% respectively.

The improved performance from these sectors was offset by a -0.8% y/y contraction amongst general retailers, a -5.6% fall in clothing (the third consecutive negative number) and a decline of -3% among other retailers. The headline growth number was more upbeat than we had anticipated given that Easter fell in March in 2016 but in April this year, and suggests that the waning inflation profile is providing modest support for household consumption. It’s important to remember, however, that the March number wont reflect the confidence shock we anticipate in the wake of the cabinet reshuffle and sovereign ratings downgrade, and 2Q17 could well remain weak. Overall, we expect consumers will use the modestly more favourable interest rate and inflation backdrop to continue deleveraging their household balance sheets, rather than increase consumption.