Thursday, September 28, 2023

Love and friendship are good for business, not for your wallet

Retail is expecting revenge in the final quarter of the year, as it has been one of the hardest-hit industries so far in 2023 and has accumulated sales in free fall for eight months.

However, on the other side of the coin are consumers who are also struggling with overwhelming inflation and will certainly have to strain to spend on the upcoming special dates: love and friendship, Halloween and Christmas.

As grandmothers would say, “The stick is not up to the task,” because the current economic cycle is not good for either party. And this will be a year when households will have to think twice before spending, especially if they have to take on debt to make the purchases.

Data from Denmark confirms progressive deterioration in trade; The second quarter of the year saw a decline of 3.2%, while it had increased by more than 23% in the same period last year.

Since this is one of the most important sectors for wealth creation in the country, its performance could be crucial for the rest of the year at a time when the economy is on the verge of a downturn.

Thus, the Day of Love and Friendship would bring relief to traders as, according to a survey by Fenalco, 84% of respondents plan to celebrate the occasion and 62% are considering a slight increase in the budget spent last year.

The survey also found that 38% of participants would provide $50,000 for the details; 40% between $50,000 and $100,000; and 22% more than $100,000.

Regarding the type of gifts, according to Fenalco, “sweets and chocolates remain the ideal gift, especially for lovers, as 25% of those surveyed said.” The clothing segment and dinner invitations compete for second place with 19% each.”

Jaime Alberto Cabal, president of the association, explained that traders have high expectations for this and the upcoming trading dates for this second semester. “Trading has been showing worrying results for eight months, so we are betting on these days when trading becomes more dynamic.”

Data from consulting firm Raddar suggests that this is actually a spending-friendly date. For example, in 2019 consumption was $2.08 trillion and by 2022 it increased to $5.21 trillion.

Will the previous year’s amount be exceeded? As private household finances continue to be burdened by high living costs and high interest rates, expectations are uncertain.

Nevertheless, the entertainment division has grown by 15.5% so far in 2023 and is by far the most resilient of all the divisions feeding the Colombian economy; This would be an example of the mood that would prevail among consumers in the latter part of the year.

Everyone arrives at the 2023 auction in a different financial situation, which is why Jaime Jaramillo, co-founder of Emotional Finance, explains that you need to measure spending to avoid future worries.

“If you are in a comfortable financial situation and have savings to celebrate, then do great. But when you already have a burden behind you, taking on more debt is like pouring water into a glass that keeps getting full and overflowing at any moment,” he commented.

He added that it is necessary to control the impulse and stop thinking about ways to celebrate that do not increase the pressure to pay: “For example, an invitation to dinner at home, I cook, and that can be better than a very. “expensive restaurant.” .

“Healthy finance is about being rational and you have to understand that currently when you buy a gift with a credit card you have to pay interest of over 40%. “It is a call to rationality and not to stinginess,” he stressed.

Why are interest rates high?

Since 2021, Colombia has faced excessive living costs that impact household purchasing power. Inflation is currently at 11.43% and has been slowing for five months. However, it is still a long way from the 3% target set by the Bank of the Republic. For this reason, the monetary authority raised the interest rate to 13.25% as a countercyclical measure to stimulate consumption through more expensive loans until consumer prices fall. Although the Ministry of Finance and unions such as Andi, Fenalco and Asobancaria have called for a reduction in interest rates, Luis Fernando Mejía, director of Fedesarrollo, explained that the country is still far from controlling inflation and reducing borrowing costs. It will still do it. Don’t be wise. According to the expectations of financial analysts and economists, consumer prices are unlikely to fall to 9.5% this year.

Nation World News Desk
Nation World News Desk
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