Cost-of-Living Crisis Casts Shadow Over Christmas in Europe

With the year-end holidays just around the corner, the pre-Christmas shopping frenzy is quieter than usual across Europe, as the soaring prices of energy and food have taken a heavy toll on consumer confidence, disrupting people's spending plans.

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"It affects us a lot, the Christmas dinners, the gifts, their number and cost. This year we are particularly careful about all of these," said Sedjkin, a United Kingdom (UK) resident.

Diego Gonzalez lives in Ireland. His family usually leaves the lights on through Christmas night in front of their house, but this year will be different. "Now we enjoy the lights for two or three hours maximum because electricity is quite expensive," he said.

Inflation has been high in Europe throughout the year and is still in double digits. In the eurozone, it reached 10 percent in November, and the UK's consumer price index (CPI) rose by 10.7 percent in the same month, both well above the official target of 2 percent.

High prices in most traditional goods segments, five successive quarters of real income decline, and depressed consumer confidence all suggest that Christmas sales will be disappointing in the eurozone.

"Given the downbeat sentiment and the cost-of-living crisis, we doubt consumers will spend much of their remaining excess savings on discretionary items," commented Tomas Dvorak, a senior economist at Oxford Economics.

Across Europe, consumer sentiment remains mooted. Leonida, a shopper in Ljubljana, Slovenia, said that she had narrowed down her Christmas gift list. In Bratislava, Slovakia, Beata had to buy fewer presents than in previous years.

"This year, we haven't got any lights up due to the energy crisis and the prices. In the family, we have decided to spend less on Christmas gifts," Kim Backe, secretary at the Helsingor Trade Council in Denmark, said.

Croatians will travel less during the holidays and will spend more time with their families and friends, said Kresimir Sever, president of the Independent Trade Unions of Croatia (NHS).

In the eurozone, consumers are unlikely to splurge during the Christmas sales and are much more likely to get thrifty, and retailers' assessment of current and expected business conditions heading into the festive season has been bleak, according to Dvorak.

"We are expecting the impact of high inflation on consumption to deepen at least during the beginning of next year although we also expect the fall in real wages to soften," Lubomir Korsnak, chief economist at the UniCredit Bank in Bratislava, Slovakia, commented.

In the UK, "we've now entered this very difficult period of high inflation, high business costs and low customer confidence. It's a very toxic mixture for any business," Andrew Goodacre, chief executive officer at the British Independent Retailers Association (Bira), said.

Though retail sales grew at a moderate pace in the year to December, retailers do not expect the recovery to continue into the new year, anticipating that sales will decline again in the year to January, according to a survey published by the Confederation of British Industry (CBI).

"Any festive cheer is expected to be short-lived," Martin Sartorius, principal economist at the CBI, said. "Retailers are bracing themselves for the chill winds that will blow through the sector this winter, with consumer spending set to be hit hard by high inflation in 2023."