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Confidence improves for a third quarter

Consumer tracking


Over the past few years, there has been a noticeable shift in consumer behavior both in Cyprus and globally. Although the COVID 19 pandemic had an impact on consumer behavior from 2020 to 2022, the market seems to bounce back gradually starting from 2023.


Specifically recent data on consumer confidence indicates a positive trend that started in the last quarter of 2022 and continued through the second quarter of 2023. This is supported by one percentage point increase in the Deloitte Consumer Confidence Index , which moved from -17.5% in Q1 2023 to -16.3% during Q2 of 2023.


Despite this progress, the index still remains below its average which suggests that consumers are still recovering from the recent economic crisis incurred due to both COVID-19 and the war in Ukraine.


In this article, we will provide a brief analysis of factors and information that have contributed to the overall increase in the consumer confidence of Q2 2023. In addition, we will give an overview of the expectations for Q3 of 2023.

Deloitte's overall confidence index combines six individual measures; disposable income levels, debt levels, job security, job opportunities and career progression, children's education and welfare, as well as general health and wellbeing.

Consumer confidence:


In the second quarter of 2023, consumer confidence saw continued growth, marking the third consecutive quarter of improvement. This positive trend is the longest period of sustained progress since Q2 2018. The factors contributing to this improvement are likely a combination of real wage growth and a strong job market. Out of the six indicators used to measure consumer confidence, four have played a significant role in driving this improvement compared to the first quarter of 2023.

Figure 1

Regarding debt, while there were some signs of improvement in consumer confidence about their debt levels during the first quarter of 2023, this trend did not continue into Q2 (with a decline of 2.1 points). There is still concern about high levels of borrowing through credit cards and various types of loan, which result in higher interest rates to manage inflation.


The outlook for health and household disposable income is positive, which is a good indication. This positive sentiment has remained consistent for four quarters, suggesting that financial pressure on households has reached its peak and is now starting to ease.


Furthermore, the increase in withdrawals from personal savings during the second quarter of 2023 indicates that some individuals are maintaining their standard of living through past savings. This helps explain the slight decrease in the household savings ratio, even though higher interest rates should be encouraging people to save in the future.


Consumer spending:


When it comes to consumer spending, inflationary pressures on expenses have led to a decrease in non-essential expenditures. However,consumers confidence towards spending remains unchanged. To maintain their standard of living, consumers have been increasing their spending. Although, the main driving force behind this is the rise in prices rather than the increase in the quantity of goods purchased.


In order to cope with inflation, consumers have adopted various strategies.For example they are reducing energy consumption, cutting back on exenses related to clothing and leisure activities and taking advantage of promotions and discounts.
Below are some examples of the consumers behavior in relation to their spending.

Figure 2

Looking ahead to the third quarter of 2023, it is anticipated that both essential and discretionary spending will show an upward trend considering overall expenditure since it is expected that inflationary pressures will further ease up next quarter.

Figure 3

Retail sector updates:


The rise in sales can be attributed to various factors, including inflation, summer holidays and the prevalence of promotions and discounts. These are some ways that consumers are coping with increasing prices.


Despite facing challenges, businesses consistently observe that online sales make up around 25% of their total sales. Given the upward trend in input costs and the scrutiny faced by pure online models, adopting an omnichannel approach seems more feasible from a financial standpoint.


Consumers are demonstrating loyalty by favoring specific brands or stores when managing their household budgets. This has resulted in a noticeable increase in the popularity of store brand products. In fact, own label brands have experienced a growth rate of 13.5% compared to the previous year.


However, retailers face difficulties capitalising on growth opportunities and shifting their focus towards profitability.


This is primarily because the impact of inflation and the increasing price sensitivity among consumers are posing challenges for retailers. As a result, retailers are expected to adopt Artificial Intelligence (AI) technologies in their operations to enhance productivity and operational efficiency.


Conclusion:


To summarise based on the available data, there is growing consumer confidence that will eventually influence their spending intentions in Q3 2023.This indicates a positive change in the consumer products industry, as consumers show their willingness to spend more in different areas. To succeed in the business world, companies in the consumer sector should focus on achieving profitable growth. This means finding the right balance between investing in engaging with consumers and improving productivity to protect profit margins. Implementing effective strategies like adjusting sales and marketing tactics, putting more technology in the game, prioritising sustainability despite difficulties and optimising the supply chain can help accomplish these goals.

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