Does holiday spending affect the economy?
BY MIQUELAA FERNANDO
If you had a rupee for every time you saw the word SALE, maybe your wallet would not look this deflated. As the festive season reaches its peak, it is becoming increasingly harder to resist the intoxicating colours of all the card promotions, window displays or hear two songs back to back on the radio, without being interrupted by this year’s most annoying Christmas Jingle. However, we forgive and willingly lose ourselves in a ruinously expensive spending frenzy believing that, at least it does some good for the economy.
According to economic theory, holiday season spending, be it Christmas, Avurudu or even Black Friday are deemed good for the economy by helping to propel economic growth. It is estimated that in some cases, holiday sales could represent about 20 percent of annual retail sales, but the figure could be even higher for some retailers. Here in Sri Lanka, small and medium businesses thrive, propelled by consumers frantically trying to fulfill gift obligations and lured into buying things like a 5 foot snowman, that they don’t really need. There are not many studies conducted on the impact of holiday spending but data revealed by Visa in 2017 shows that credit card usage in Sri Lanka surged to almost twice that of any other month, in December. It was reported that total card spends during the month of December grew by 12% with credit cards accounting for 53% of expenditure. It is after all hard to resist 50 percent off luxury items that usually make you blanch at the price.
Not only in Sri Lanka, retailers around the world await holiday seasons, such as Halloween in the United States, where according to the National Retail Federation of America, in 2019, Americans planned to spend a near-record $8.8 billion. Therefore, the evidence does seem to indicate that holiday spending provides a much needed injection into economies around the world with many short-term benefits.
However, some economic analysts argue that holiday expenditure is in fact a “zero sum game.” They say that many consumers cut back on expenditure in previous months in order to save up for the whirlwind of expenses during festive seasons and therefore, consumption is in fact balanced over a period of time. Moreover, most of the expenditure during the holiday seasons are done using credit cards. Therefore, with the end of the season, when the credit card bills arrive and the truth finally breaks through, the next few months are spent miserly, nullifying the holiday spending. Furthermore,in a trend seen all over the world, retail sales are moving onto online platforms. Here in Sri Lanka as well, the Sri Lanka Retailer’s Association has recognised it as the future of retail sales and recently requested for a better e-commerce payment gateway, despite only 0.5 percent of our USD 10 billion annual retail sales being online sales. The shift to online sales would impact many of the businesses in Sri Lanka that remain informal and rely on physical store sales. Moreover, online sales make it harder to determine the true impact of extensive holiday expenditure on the economy.
There may not be conclusive evidence to support the theory that holiday spending positively impacts the economy in the long run. However, there are many people who work in an economy beyond the grasp of economic statistics and government data. Here in Sri Lanka this informal economy makes up nearly 60% of our whole economy. For them, this rush of holiday spending could mean everything. There is little doubt that the myriad of vendors that appear during festive seasons in Sri Lanka, selling handmade christmas decorations, vesak lanterns or firecrackers rely immensely on holiday spending for a means of income and to bolster themselves for the drought of spending that often follows festive seasons. Therefore, it is important to remember this shadow economy, which quietly uplifts the lives of many in Sri Lanka and in other countries all over the world, this festive season.
