New Year's Eve Spending Plans Dampened by Economic Worries and Global Tensions

30 Dec, 2023

New Year's Eve Spending Plans Dampened by Economic Worries and Global Tensions

As the festive season progresses and the year draws to a close, Canadians are faced with critical decisions regarding their spending for New Year's Eve celebrations. With the holidays of Christmas and Boxing Day now behind them, individuals across the country are reevaluating their plans amidst a backdrop of various concerns that span economic worries, global tensions, and the ongoing impact of the COVID-19 pandemic.

A study conducted by Deloitte Canada back in October predicted a significant 11% decline in average household spending during the holidays compared to the previous year. This anticipated decrease in spending is largely attributed to persistent financial pressures faced by Canadian households. The study is just one among several reports that have forecasted lower consumer expenditures during this holiday season.

Vivek Astvansh, a respected marketing professor at McGill University, highlighted the prevailing issue of escalating expenses. Canada's consumer price index surged to a record high recently, signaling a sustained rise in inflation that experts anticipate extending well into the year 2024. The continuous surge in prices has compelled many Canadians to reconsider their New Year's Eve plans, with a growing inclination towards hosting smaller and more economical private gatherings. For those still considering venturing out to bars or restaurants, there is a trend towards selecting more budget-friendly venues.

Beyond the immediate financial concerns, global tensions and geopolitical turmoil have contributed to a palpable sense of unease among consumers. Events such as the Israel-Hamas conflict and Russia's ongoing invasion of Ukraine have instigated an overall atmosphere of uncertainty and discontent, impacting people's enthusiasm for the holiday season and the upcoming new year.

Despite these prevailing challenges and feelings of uncertainty, there remains a contrasting desire among individuals to seek moments of celebration and escape. This sentiment prompts many to defy the somber global backdrop, opting to dress up and engage in festivities as a way to affirm friendships and find solace amidst the prevailing global despair.

In the United States, despite financial apprehensions and higher prices in specific areas, holiday sales saw an increase, aligning with typical seasonal levels. However, the surge in spending seen during the same period last year was not replicated this year.

Looking ahead beyond December 31st, New Year's resolutions are anticipated to influence spending habits, particularly in areas concerning health and self-improvement. Despite the ongoing rise in costs, individuals are expected to invest in fitness centers, educational programs, and other personal development activities as they strive to kickstart the new year positively.

Statistics Canada's report in November revealed a 3.1% inflation rate, highlighting increased prices in recreation, clothing, and a minor slowdown in grocery price hikes compared to the previous month.

The Canadian economy has faced challenges throughout the year due to higher borrowing costs, impacting both consumer spending and the business landscape. The rising unemployment rate has further compounded these economic concerns, as the job market struggles to accommodate strong population growth, thereby influencing consumer spending behaviors.

Moreover, the Bank of Canada's decision to maintain the highest benchmark interest rate since 2001 has had a considerable impact on homeowners and debtors, consuming a larger share of disposable income. Notably, a substantial portion of Canadian mortgages, accounting for 45% of outstanding mortgages, are set for renewal in the years 2024 and 2025.

While tougher economic conditions are expected to potentially contribute to a slowdown in inflation next year, Bank of Canada Governor Tiff Macklem has acknowledged potential challenges in steering inflation back to the central bank's targeted 2% rate. This recognition indicates that despite efforts, the journey to restoring economic stability may encounter some hurdles along the way.