Household debt as a determinant of retail and personal consumption – the case of Croatia

Abstract

The main goal of this paper is to determine the main characteristics and determinants of retail trade in Croatia over the last 20 years, and to analyse its retail turnover in comparison with other EU countries, especially during the last economic crisis. Using a regression model, the paper econometrically tests the hypothesis that the speed of the post-crisis recovery in retail turnover can be explained by the debt levels accumulated in the pre-crisis period. The results of the analysis indicate the negative correlation between variables, which means that the countries that had the lowest levels of accumulated private debt, on average experienced the fastest recovery of retail turnover in the post-crisis period, and vice versa. The weaker correlation has been found in case of retail sales of food, beverages and tobacco products, which leads us to the conclusion that its consumption was not mainly financed by borrowing and, also, that its recovery does not depend primarily on the level of household debt. The analysis for the non-food sector indicated a very high dependence of this type of consumption on household debt, which remains one of the main impediments to its recovery.

Competitive convergence in retailing

“…Retail sales are one of the most important activities in any developed country because they contribute to business development, the generation of employment, the stability of prices and continuity in the supply of consumers, with the food segment being particularly important in terms of both volume and value (Godley & Hang, 2012;Obadić & Globan, 2015). In the last few years, the introduction of new retail formats has significantly altered the nature of retail distribution, with increasingly saturated, concentrated and internationalised markets and new competition patterns (Colla, 2004;Dawson, 2001).…”

“…The retail sector is also one of the largest users of information and communication technology (ICT), and is therefore an initiator of innovations. It plays the main role in the development of a sustainable economy and gives citizens simple access to cheap and high-quality products under the conditions of the current economic crisis (Obadić & Globan, 2015). It is assumed that the growth of international retail is connected with the growing levels of globalisation.…”

The microeconomic approach to food demand modelling: empirical results for Croatian households

“…However, while trends suggest a certain level of convergence in the structure of the personal consumption, the structure of food consumption is extremely "smooth"in other words, the share of individual expenditure on food is largely stable. Macroeconomic modelling of the food consumption function based on 2005-2013 population consumption data resulted in a positive impact of GDP and real wages on food consumption, while the CROBEX stock index showed a negative relationship with food consumption (Obadi c & Globan, 2015). Interestingly, variables such as consumer confidence index, real estate prices, unemployment rate and household debt did not have a significant impact on consumption trends -the authors conclude that a large share of food consumption is a necessity, therefore not much dependent on macroeconomic trends such as other consumption categories.…”