Will consumers behave like Santa or Scrooge this Christmas?

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The FINANCIAL — Recent trends in consumer spending indicate that year-on-year growth in most Western economies is in the 2-4% range in real terms, signalling good news for retailers and businesses this festive season.

“Consumer spending is fundamental to businesses and economies, and, in many of the advanced economies that we track, accounts for around two-thirds of economic activity. It is also a key driver of corporate revenues, which, in turn, correlate positively with the hiring intentions of most businesses,” said Richard Boxshall, Senior Economist, PwC.

According to PwC economists, both the main drivers of consumer spending – real disposable income and the savings ratio – have played a part in this uptrend. Most of the economies in our sample are in a ‘sweet spot’ where real disposable incomes have grown and savings ratios have decreased but in Germany the savings ratio has increased despite rising incomes.

Greece and Italy, however, are in the ‘squeezed’ quadrant, where incomes have fallen and consumers have brought down their savings ratio to offset this.

Going forward, we see a positive outlook for consumer spending in most of the advanced economies we track. However, some emerging economies – such as Russia and Turkey (because of geopolitical events) and Brazil (due to economic troubles) – could be facing higher downside risks.

Concluded Mr Boxshall: “If consumers continue to behave more like Santa and less like Scrooge, the retail sector as a whole should record good sales figures during the key Christmas shopping period. However, businesses and retailers in some emerging economies that are seeing geopolitical or economic uncertainty should continue to put in place contingency plans via scenario planning to prepare for the impact of possible downside risks.”

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