Hungarian luxury market continues its downturn, a recovery being unlikely before the last quarter of 2010

Hungarian retail sales plunged in July as the government increased the value-added tax rate to 25 percent from 20 percent to boost revenues and plug a hole in the budget.

The country has suffered from a collapse in western demand for the cars and other products it produces, a factor that has hit driven up unemployment and flooded into domestic demand. The government is also hampered by strained finances that will force it to continue cutting spending and expects the economy to shrink 6.7 percent in 2009, with growth returning only in 2011.

Analysts said the sales figure accounted for a big one-off dent but the overall trend was still discouraging and lacked hope for a positive trend shift.

We, at CPP estimate the Hungarian luxury market to recover in the last quarter of 2010. Major luxury brands such as Louis Vuitton, Gucci, Burberry and Emporio Armani have all rushed to open monobrand stores before the crisis, without realizing the local luxury consumers account for less than 20% of sales, the majority being foreign tourists, the number of which has decreased dramatically since the debut of the crisis.