The champagne effect runs out and consumers activate the saving mode

The champagne effect that has accompanied the return to normality after the pandemic is beginning to show signs of exhaustion.

Thomas Osborne
Thomas Osborne
26 September 2022 Monday 00:40
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The champagne effect runs out and consumers activate the saving mode

The champagne effect that has accompanied the return to normality after the pandemic is beginning to show signs of exhaustion. After a second quarter of consumer euphoria, which has led to an upward correction of the GDP figure, the storm of inflation, rate hikes and uncertainty due to the evolution of the war in Ukraine is leading households to an incipient savings mode.

Families have stopped buying so happily, the latest card payment data from CaixaBank and BBVA coincide. “All public indicators point to a drop in consumption, and the same is true of the information we handle regarding card spending; in the second quarter it was 13% above the same period in 2019, but as of August we see a certain slowdown and the increase is more moderate, 11% so far in September”, confirms Oriol Aspachs, director of Spanish economy from CaixaBank Research. If the effect of inflation (10.5% in August) is taken into account, the fall in real consumption is even greater, adds Aspachs.

This tendency to contain spending affects almost all sectors: tourism, leisure and restaurants, transport... and especially retail trade. The recovery of social life since spring has boosted sales in fashion stores and has left historical results in Zara and the other brands of the Inditex group, with a turnover in the first semester 24.5% higher than that of the first six months of last year.

From August 1 to September 11, on the other hand, the company's sales increase is more contained, 11%. The same happens with smaller textile companies. A recent report by Kantar with the Modacc cluster shows positive figures for clothing stores in Spain despite the rise in prices in the first half of the year, although it does observe a certain drop from the end of the summer. “Sales in July were good, but August has been weaker than we expected; the uncertainty about the activity for the end of the year is high”, comments David García, executive director of Modacc.

Among the signs that suggest a probable deterioration in consumption, Miguel Cardoso, chief economist at BBVA Research, highlights the drop in spending from the second half of August, "more pronounced than usual for the time". “It could be a one-off phenomenon –continues Cardoso–, but the indicators tell us that the resources of households are beginning to be scarce and the impact of the end of the restrictions is exhausting”. Families have also reacted with significant savings in electricity or gasoline consumption after the galloping price increase, and sales of household appliances and furniture have also slowed down after the great rebound experienced during the pandemic.

The shopping basket, on the other hand, is currently resisting the slowdown in consumption, Aspachs points out. "Expenditure is increasing because inflation is at high levels and, as they are basic necessities, they are not easily substitutable," considers the economist. In fact, spending on food rises more among the population with fewer resources, with greater difficulties in finding cheaper food than what they already consumed, according to analysis by CaixaBank Research.

Sectors such as tourism, which suffered so much from the impact of the covid, on the other hand, remove the danger that the activity will go into lethargy. "We do not see any warning signs at the moment, and reserves remain high until November, even above 2019," says José Luis Zoreda, executive vice president of Exceltur, the entity that brings together the main companies in the industry.

The end of the consumer euphoria after the pandemic, however, does not seem to point to a recession, "but to a possible stagnation," Cardoso clarifies. Contrary to the 2008 crisis, there are currently no conditions to generate a snowball effect that deteriorates the economy so profoundly.