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Why consumers in the West have started to spend again

PUBLISHED : Friday, 24 January, 2014, 12:36am
UPDATED : Friday, 24 January, 2014, 12:36am

Hopes are rising that US and European consumers will drive stronger growth this year after they stepped up spending at the end of last year.

The outlook is brightening even though growth is weakening in some large emerging economies and slowing the sales of consumer-product giants.

Several trends are boosting consumer spending in developed countries. Inflation is low, enabling shoppers to stretch their dollars, euros and yen. And the US Federal Reserve, the Bank of England and other central banks are keeping interest rates super-low. Those low rates have made it easier for borrowers to afford higher-cost items such as cars and appliances.

Global retail sales growth jumped to a 5.4 per cent annual pace between September and November, according to economists at JPMorgan Chase. And global car sales reached an all-time high in December, the bank said.

"It was a year of big improvement in consumer spending after two years of very weak growth," said David Hensley, a global economist at the bank.

"Businesses were pleasantly surprised by the increase in consumption."

Even in Europe, where growth remains slow after the region emerged last year from its longest-ever recession, consumers appear willing to spend more. Retail sales spiked 1.4 per cent in November, the biggest increase in 12 years.

In the United States, Morgan Stanley economists forecast that consumer spending rose in the final three months of the year at its fastest pace in three years.

Consumer spending in Japan could jump by as much as 7 per cent in the first quarter of 2014, JPMorgan calculates. Much of that gain might reflect greater spending ahead of an April increase in a national sales tax, from 5 per cent to 8 per cent.

Sales will likely fall after that, making it harder to determine broader trends.

With more consumers willing to open their wallets, businesses would also likely start spending more on machinery, computers and other equipment, Hensley said, providing an additional spark to growth.

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