Whether all of Europe will step into a serious or less serious recession directly depends on consumption and consumers. With inflation, which, despite global wage growth, is eroding disposable income, their habits have also changed.
During the pandemic, there was a mass migration to virtual offices (the number of physical stores is rapidly decreasing), which only accelerated the digitization of the world, including retail. Consumers have become more spoiled, increasingly less loyal to the same brands and stores, seeking a more personalized approach and experience, as well as the sustainability of the company/brand from which they purchase products and services. However, with inflation decreasing significantly slower than expected, before all these trends and reasons come the financial (in)capabilities of consumers and their perception of the risks of the times we live in.
According to a survey by Valicon, a consulting marketing firm, conducted in May in the SEE region (in Croatia, Slovenia, Bosnia and Herzegovina, and Serbia), the situation is not bright, but the trends are not entirely discouraging either. Although expectations regarding personal financial situations have been negative practically since the beginning of the pandemic, meaning that respondents expect a worse economic situation rather than recovery, optimistic expectations are nonetheless growing. The increase in optimism is the smallest in Croatia.
Specifically – in the third quarter of 2022, the most pessimistic were in Serbia, at 63 percent, and the least in Slovenia, at 36 percent. In the second quarter of this year, the least number of those expecting a negative development of their personal financial situation is in Slovenia, only 10 percent, the most in Serbia, 36 percent, followed by Croatia, 22 percent. When comparing last year’s third quarter and this year’s second, the most positivity is expressed in Bosnia and Herzegovina (the difference is as much as 19 percentage points, in the direction of increasing positive expectations), and the least in Croatia (the difference is only 4 percentage points).
1. Assessment of Personal Financial Situation
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Similar results were obtained regarding the assessment of personal consumption. Last year, the most pessimism was expressed in Serbia, at 74 percent, and in Croatia, at 63 percent of respondents. When calculating the difference in attitudes about personal consumption last year and this year, the smallest increase in optimism is in Croatia, only 9 percentage points, and the largest again in Bosnia and Herzegovina, 11 percentage points.
2. Level of Expected Consumption
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Such attitudes are not unexpected, not only because we are frightened by the recession (into which Germany has already stepped, and we know that everything spills into our yard with a time lag of six months to a year) but also because consumption could potentially be pushed by savings and/or new savings. However, according to the survey, the news is not great here either. Namely, what is concerning are the percentages of those who were able to save but can no longer do so, and those who have cut their savings amounts. When adding all those who did not save before, the data shows that on average (in all four countries) almost two-thirds fall into this category. Although in Croatia the percentage of those who can no longer save and those who have reduced their savings amounts is the same, thus, the percentage of those who do not save at all has increased.
3. Savings
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Savings are likely decreasing also due to inflation, as it reduces disposable income, both for consumption and for savings. However, the good news is that perceptions and expectations of inflation are falling, although a large part of the respondents still expects price increases – from the lowest 58 percent in Slovenia to the highest 68 percent in Croatia.
Additionally, consumer habits have changed in all surveyed countries – cheaper products and products on sale are being purchased, and shopping is mainly done in discount stores. Also, the older group of respondents is postponing larger purchases and investments and is increasingly completely giving up on purchasing products and services they do not consider essential for life.
Current trends are clearly not good, and retailers must start adapting to consumer pessimism. The fact that price increases are no longer closely related to the growth of input costs shows that there is still room either to cut prices or to withstand the blow of reduced consumption. However, as the respondents are still more optimistic about the future, they may face recovery without significantly impaired balances.
