Household debt as a determinant of retail and personal consumption – the case of Croatia

The main goal of this paper is to determine the main characteristics and determinants of retail trade in Croatia over the last 20 years, and to analyse its retail turnover in comparison with other EU countries, especially during the last economic crisis. Using a regression model, the paper econometrically tests the hypothesis that the speed of the post-crisis recovery in retail turnover can be explained by the debt levels accumulated in the pre-crisis period. The results of the analysis indicate the negative correlation between variables, which means that the countries that had the lowest levels of accumulated private debt, on average experienced the fastest recovery of retail turnover in the post-crisis period, and vice versa. The weaker correlation has been found in case of retail sales of food, beverages and tobacco products, which leads us to the conclusion that its consumption was not mainly financed by borrowing and, also, that its recovery does not depend primarily on the level of household debt. The analysis for the non-food sector indicated a very high dependence of this type of consumption on household debt, which remains one of the main impediments to its recovery.