World’s consumers plan to cut back on discretionary spend

Last month we wrote about signs that China’s construction bubble could be on the verge of bursting. There were concerns of large and mounting debts held by LGFV (Local Government Finance Vehicles) for empty office towers, residential real estate and other non performing infrastructure investments.

Two days after we wrote the post, China’s National Audit Office came clean with figures indicating local government debts totalled 10.72 trillion Yuan ($1.66 trillion USD) at the end of 2010. Ratings agency Moody’s has this week suggested China may have understated this debt by as much as $541.6 billion.

But huge debts in China’s real estate and infrastructure sectors may be just one problem. In the post last month, we wrote :

During the last decade, the Western world, fuelled by easy and abundant credit was spending beyond their means. Household consumption was surging along, and China was in the front seat to capitalise on the moment. However, like many other economies, things turned sour in 2008 with the onset of the Global Financial Crisis (GFC). Exports practically dried up overnight for the manufacturing superpower.

A consumer sentiment report conducted by Boston Consulting Group of 21 countries show consumers around the world are intending to cut back on discretionary spending in the next 12 months. The report shows 53 percent of consumers in Greece and 50 percent in Britain plan to make cuts to their discretionary spend. Not surprisingly, Australians, who have some of the highest levels of household debt in the world was in third place with at least 48 percent planning to cut back. 44 percent of consumers in the USA, Europe, and Canada, 42 percent in India, 26 percent in China and 19 percent in Russia plan to cut back.

The survey sure doesn’t paint a very prosperous position for world growth as consumers around the world start to de-leverage from one of the biggest debt binges in history.

» China’s local government debts exceed 10t yuan – China Daily, 27th June 2011.
» China understating local govt debt: ratings agency – The West Australian, 5th July 2011.
» Aussie consumers among the world’s most cautious – The Australian, 7th July 2011.


  1. Check out the Baltic Dry Index for a snapshot of the depression. The five year graph says it all.

    So lets bring in a new world tax to make the depression official. Yeah for democracy!
    What’s with the peace price winner OsamaObama sending ground forces into Libiya this September/October.

    I know who crashed the economy.

  2. The article gives the impression people on a whole have a choice in spending/saving/deleveraging. Many don’t, and many of that many will become the novo-permanent-larger underclass. Oddly enough (or logically enough) many would have come from the novo-illuded-rich.

    The ruthless, cunning, and smart made the Ponzi, the rest fell into their own vices. Materialism a virtue of the rich, now a vice of the poor.

  3. Materialism can only be held by those with a low self esteem. Most of the world fits that picture and now the rot of it all has come to spread its cancer.
    Its nice to have things but not at the expence of your freedom. What did Jesus say” Life does not consist in the abundance of things” mmmmmm I think He is right.
    If your life is in things you must have, then the must have will have you for dinner.

    With the greatest credit we have ever had we now realise the poison chalice it was,was to the gullible and to the poor.
    Growing up in the 60s was a great decade. It was never about what you had it was always about the people around you. Then come 1975 materailism and it all changed and exploded in 2007. What happened ?
    We all realised it does’t work.The world that deleverges its debt will have a better future of stability. The Euro is the worlds guideline to wealth not China. What happens in the eurozone will dictate to the world.

  4. “Materialism can only be held by those with a low self esteem.” John, I can’t agree more with you. I did much work in Market Research, not the statistical counting, taste this butter to that butter and give it a score type of research. Rather the study and analysis of the psyche, neurology, psychiatry, psychology, what ever other behavioural science you can throw in that mix, and their self acclaimed brilliance is the worse a person feels about themself and the world around them, the more likely they will spend (their money or credit) for a short, quick fix (and please repeat this emotional, self-esteem quick fix on and on). I saw this as true to a significant degree, and companies would consult the agency I worked for and be quite pleased to be advised on how to advertise and to whom. Not an exact science nor philosophy but did achieve some results.

    Basically on a one dimensional vertical axis, the very top (extreme) is defined as; consciousness, enlightenment, self actualisation, spirituality, thoughtfulness,… that bag of goodies. The very bottom of the axis is, depressed, low self-esteem, not confident, even jealous,… the things nobody wants to be. With people at the top of the axis, don’t bother trying to sell them anything. They will buy on their decision for whatever reason that may be, and the product they want (eg they’ll buy a Corolla and not the Merc). The people that fit the bottom of the axis, go for it, make them feel good about their purcahse, sell them an emotion, a realm they can picture themself in, not the product you want them to buy. If they don’t have the means to purchase, no problem! Give them (more and more) credit. I’ll add that either side of this axis has its’ share of wealthy and poor people.

    What a sad picture of people this paints and very well pointed out, “With the greatest credit we have ever had we now realise the poison chalice it was, was to the gullible and to the poor.” Yes John your response reminded me of my days working for the researchers.

    I spent my younger, vigorous days during the 1970’s and look back thinking, yes we we’re much happier then, had less material things, lay-buyed (or lay-bought for proper English) what we wanted but couldn’t afford just yet, spoke a little more with each other on a chance encounter sitting on a footpath bench in the City (Sydney). To the last decade of people (I speak of people I know personally), aquired everything from an overpriced house, 2 luxury cars, private schools for the kids, a notebook, iPhone, iPod, PS 3 and TV for each family member, holidays on credit, far too stuck up to talk with anybody, owning nothing really, owing on everything, and in that 10 year period not realising that everybody was doing the exact same(God-damn)thing so, how we’re you going to become rich, didn’t even cross their over-inflated heads. What a bad world we’ve turned this into, really want it to get better for all of us. I see these people looking like they’re in a deep state of fear, as the high salary has been taken out of their equation and no buyers of their debt, “…then the must have will have you for dinner”.

    The world has to get better we don’t deserve this!

  5. BotRot well said,”over inflated heads” how true. I’m certainly not against capitalism, but I am for the destruction of the poison that capitalism brings called,” seperatism” ie: “I am better than U meantality”

    Capitalism should bring “humanism” to play. Where all men are equal and connected for the good will of humanity. Where no one is better than there neighbour but the only thing that sets them apart, is their gifting.

    Will this ever happen??

  6. A dramatic drop in Chinese asset values would shake confidence in China’s economic vitality and it would open debate about whether or not China’s economy is over-leveraged (it is). That is actually what made the property bubble aftermath so devastating for Japan, America and Ireland.

    There’s a great discussion here ( China Property Bubble ) about the Chinese economic bubble and it’s potential impact on the global economy. Several months ago, Chinese “expert” Nick Lardy dismissed worries about what he called the “so-called property bubble” – this was during a conference held at Peterson Institute in Washington DC. However, he now conceded that says a real estate downturn may cause a significant in China, and this is an opinion shared by many other mainstream economic analysts.

    So what changed his opinion? I would suggest a dawning realisation that most of the massive Chinese stimulus, lending and spending during 2009/10 just ended up in property purchases, which drove real estate prices in an alarming and totally unsustainable manner. Also, a realisation that China’s economic system frequently produces bubbles, and that’s not very likely to change in the near future!

    Dennis Conroy
    Australian Real Estate Bubble Blog

  7. The banks are trying to encourage more consumption with all the prefilled applications for $15,000 credit cards they send me.
    Piss Off ! If I want something to buy, I work for it and pay for it with my own money, and then no one can take it away from me legally.
    Soon discretionary spending will be classed as purchases of other brands of food instead of No Frills, Black and Gold and Homebrand.
    For example;
    Wow, How did you afford that? Is that really a bananna? I have only ever seen pictures. What does it taste like?
    Mummy, can I get in the car today instead of push it to school?

    Yoda say; People have many rocks in garden to throw at glass houses. Ever been to Greece?

  8. Well DJ’s and Myer have just revised their profit outlook… DOWN DOWN DOWN.

    We aren’t planning to cut back discretionary spending; we already have!

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