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Monday 18.06.2018 | Name days: Madis, Alberts
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LB: weak purchase ability and household debts slow private consumption

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Government and analysts announce the end of the crisis, but residents do not feel the same way. Based on the public opinion referring to the crisis in past tense is a bit premature, and that is merely a subjective opinion; households have a reason to think that way – purchasing ability improvements are nowhere to be seen, Latvijas Banka economist Agnese Becevska notes.

A long time has passed since September 2006 positive consumer mood, much water and jelly has flown. A new historical record was reached in 2009, only in negative terms. A steep drop in both national economy and in the mood of consumers and businessmen began in 2009. To bring order to the budget, significant cuts to government costs and increase in taxes were made thereby undoubtedly affecting both the purchasing ability of consumers and their income. Shadow economy notably increased. The economist notes that, later though, consumer mood improved.

All and all consumption dropped to 2005 levels during the crisis, and then consumer mood dropped twice as low as 2005 levels, and only now, after two years reached it. Of course it is hard to accept small consumption levels, while earlier we could have spent a lot more. Even regarding as «fatty years» the illusion is based on loans, wage increases that do not reflect productivity and the real-estate price bubble, which could not hold up long term national economy, the income drop is painful for everyone, Bicevska stresses.

In the end we can conclude that, private consumption restoration will progress slowly because of the weak purchasing ability and the debt levels, which make up about 65% of allocated income. Disregarding the surge in employment and average wages, in 2011 resident purchasing ability improvement was halted by price increase – specifically world food prices and rise in local taxes and tariffs. The small improvement of 2010-2011 is barely felt when compared with a significant drop in consumption in the beginning, which is why people believe that the crisis is far from over. In this aspect we cannot wait for the return of the «fatty years» benefits, and it would not be necessary if we do not want another painful hit on the head with a rake; that is this bubble will burst sooner or later, Bicevska, the economist, admits.

Ref: 102.109.109.549


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  1. Kiki says:

    Do like me I left that shitty place four years ago and I feel much better.Get to germany there are jobs for every one.

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