Scars from financial crisis still visible on Christmas spending

Emerging markets are spending more during Christmas….

For most G7 economies real GDP is now above pre-crisis levels. However, does this trend also apply to spending over the Christmas period?

To answer this, we estimated spending over the Christmas period using annual household consumption data from the World Bank and monthly retail sales data from national statistical agencies (see Assumptions and methodology box for more details). Doing so gave us a broad indication of cross-country differences in spending over the Christmas period as opposed to precise dollar estimations and therefore the results should be treated with some caution.

Figure 3 shows that the evidence on the recovery of Christmas spending after the financial crisis is mixed. In the two largest emerging markets that celebrate Christmas, Brazil and Russia, consumers spent more in real terms last year during the Christmas period than in 2007. This makes sense as their economies have grown at reasonably strong rates since the Global Financial Crisis (despite some recent slowdown).

Fig 3: Christmas spending in the US has still not recovered since the financial crisis

Fig 3: Christmas spending in the US has still not recovered since the financial crisis
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…but scars from the crisis are still visible in some advanced economies

In contrast, the picture is less clear for advanced economies. Figure 3 shows that spending per person over the Christmas period has recovered to above pre-crisis levels in Germany and the UK, but not in the US. This is surprising, as US GDP per capita grew by 1% overall in real terms since 2007 compared to a decrease of 6% overall in the UK. This pattern could suggest that UK consumers are less willing to cut back on Christmas spending compared to those in the US.

Focusing on the Eurozone, our analysis suggests a core-periphery divide with those in the periphery cutting back drastically on Christmas spending. In Greece, for example, real per person Christmas spending decreased by around 60% overall in the six years to 2013, which is the worst performance out of the 12 countries in our sample. Figure 3 also shows that Spanish and Portuguese real Christmas spending per person remains significantly below 2007 levels. This makes sense as the austerity measures implemented in the peripheral economies included significant nominal wage cuts, which have directly affected the purchasing power of consumers, and remain at lower levels compared to the pre-crisis era.

Christmas a luxury good?

Figure 4 shows the sensitivity of real spending per person over the Christmas period to the changes in real GDP per capita (also known as income elasticity of demand for ‘Christmas spending’). This analysis shows that:

  • Per person Christmas spending is more sensitive to fluctuations in income levels in the peripheral economies compared to the core economies. This suggests that consumers in the peripheral economies view Christmas spending as something of a luxury and are therefore more likely to cut-back on this type of discretionary spending at times of crisis.
  • At the other end of the spectrum Irish per person Christmas spending is the least responsive to changes in income compared to the other Eurozone economies in our sample. This could perhaps be explained by cultural differences whereby local traditions assign greater importance to Christmas compared to other events during the year. This trend is also consistent with Figure 1 which shows that real Irish per person Christmas spending is proportionally higher for its level of real GDP per capita.

Fig 4: Christmas spending has been more responsive to income in the periphery since 2007

Fig 4: Christmas spending has been more responsive to income in the periphery since 2007
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