13/2/17: Wages, Income and Consumption: Euro Area's Poor Performance since 2003

Based on data reported at the end of January 2017 by the Eurostat, since 2003, through 3Q 2016, or roughly across the span of 13 years,

• Nominal adjusted gross disposable income per capita has grown by a cumulative 26.37 percent in the Euro Area (EA 19) member states  
• Real adjusted gross disposable income per capita has risen only 5.30 percent
• Real actual final consumption per capita rose just 7.75 percent
• Nominal wages have expanded by 12.4 percent, cumulative.

Compared to pre-Global Financial Crisis peaks (based on the 4 quarters average around the peak) at the end of 3Q 2016:

• Nominal adjusted gross disposable income per capita was 9.7 percent higher
• Real adjusted gross disposable income per capita was only 0.73 percent higher
• Real actual final consumption per capita was up only 1.66 percent
• Nominal wages rose 4.64 percent, or less than half the rate of increase in nominal income.

As chart below shows, in simple terms, the last nine years saw:

1. Basically flat real adjusted gross disposable incomes per capita; and
2. Widening gap between real actual consumption per capita and the real adjusted gross disposable income per capita

Coupled with a simple fact that the EA19 includes countries with consumption and incomes catching up toward the EA12 averages, while gross disposable income does not net out fiscal losses sustained due to post-crisis tax and spending rebalancing across the EA19, the picture is quite dire: there is, effectively, no meaningful growth in incomes in the euro area for some 9-10 years running. Worse, when we adjust for ageing demographics, the marginal increase in the real consumption of the last 9-10 years is also far from being comforting. 

While the Eurostat does not report received real wages dynamics, using income deflator we can estimate changes in the real wages. Chart below shows the results:

In real (inflation-adjusted) terms, take home (received) wages have fallen in the EA19 group of countries in 2003-2016, with 3Q 2016 real wages index reading at around 93.6, down 6.4 percentage points on the end of 2003. A caveat applying to this is that I am using index values to map out nominal-to-real revaluation. Still, minor errors and rounding issues aside, the chart above clearly shows the lack of real wages income uplift in the EA19 since the early 2000s.

21/5/16: Euro Area Income per Capita: Is the Crisis Finally Over?

Has euro area recovered from the crisis on a per-capita basis? 

Let’s take a look at the latest data available from the Eurostat, covering the period through 4Q 2015.

Looking at the Nominal gross disposable income per capita first: in 4Q 2015, income per capita in the euro area stood at +6.67 percent premium over the pre-crisis peak (measured as an average of 4 highest pre-crisis quarters) and at +3.86 percent premium to the overall highest pre-crisis quarter reading. This is not new: the measure attained its pre-crisis peak within 6 quarters following the peak quarter (3Q 2008). So by this metric, the answer to the above question is ‘Yes’.

Now, consider Real gross disposable income per capita: in 4Q 2015, real income per capita in the euro area was still down 0.57 percent on pre-crisis peak (based on 4 quarters pre-crisis peak average) and down 0.72 percent on pre-crisis peak quarter. Given the peak quarter was in 1Q 2008, we are now into 31 quarters of a crisis and counting. Notably, due to deflation at the height of the crisis, real disposable per capita income actually reached above the pre-crisis peak in 3Q 2009, and as of 4Q 2015, real disposable income per capita in the euro area is down on that reading some 1.31 percent. So by real (inflation-adjusted) metric, the answer to the above question is ’No’.

Lastly, consider Real actual final consumption per capita: in 4Q 2015, real consumption per capita in the euro area was 0.25 percent below pre-crisis peak (for peak measured as an average of four quarters including the peak quarter); and it is down 0.52 percent on pre-crisis peak quarter. As with real income per capita, we now into 31 quarters of below-peak real consumption, so the crisis goes on, judging by this metric.

Here’s a chart to illustrate:

14/8/15: Individual Consumption and the Irish Crisis

Couple of interesting charts showing the latest annual data on individual consumption in the EU.

First, volume indices of real expenditure per capita in PPS (with index for each year set at EU28=100) (these figures are adjusted for inflation and exchange rates differences.

The chart shows how growth in consumption in the EU28 over time was coincident with decline in relative position of Ireland in terms of individual consumption throughout the crisis period. In 2003-2004 Irish individual consumption stood 8 and 7 percentage points above EU28 average. This was marginally below the EA12 average. In 2005-2007, Irish individual consumption grew faster than consumption for EU28 and EA12, rising to 110 in index terms, or 10 percentage points above the EU28 and roughly 2 percentage points above the EA12. Since 2008, however, Irish individual consumption fell both relative to EU28 and EA12 figures. In the second year of 'robust recovery' - 2014 - Irish individual consumption (adjusting for inflation and exchange rates differences) hit the period low of 93 - full 7 percentage points below EU28 and 14 points below EA12.

As the result of the crisis, our real consumption per capita was down 16.2% on 2007 levels, which is the second worst performance after Greece (down 17%). Our performance was much worse than a 13.6% decline registered in the U.K., 10.6% decline registered in Iceland, 9.9% drop in Cyprus, 9.7% decline in the Netherlands, 8.2% drop in Spain and so on.

In nominal terms (without adjusting for inflation), our individual consumption record was equally abysmal (comparing only euro area states to remove distorting effects of exchange rates variation):

In summary, even after the onset of the 'fastest recovery' in the euro area, Ireland's actual individual consumption of goods and services remained au-par. In 2014 itself, our individual consumption grew 6.0% y/y - second fastest in EU28 after Luxembourg - but years of past devastation meant that our consumption remained second worst hit compared to pre-crisis levels. In 1999, Ireland ranked 12th in terms of individual nominal consumption in the EU 28 group of states. Our best year was attained in 2008 when we ranked 3rd. In every year between 2011 and 2014, we ranked 11th. In simple terms, the entire history of the euro area membership for Ireland has been equivalent to, largely, standing still in terms of our relative wellbeing compared to other EU states.