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.