Catching up with the “old” EU, but not quite there yet

The difference in the consumption level in Poland and the EU average is narrowing. Polish incomes are lagging behind other EU member states, but the prices are also much lower. However, Romania is catching up with the more affluent member states of the EU at a substantially faster rate than Poland.
Catching up with the “old” EU, but not quite there yet

In order to determine the actual level of prosperity it is necessary to take into account not only the income levels but also the costs of similar types of products and services. While Poland may complain about the current accelerated inflation, in many respects the cost of living is still much lower than in generally less affluent neighboring countries, let alone the wealthy, “old” EU member states.

According to the Eurostat’s report on price levels in the European Union, in 2019 prices in Poland stood at 60 per cent of the average EU prices. Out of all EU member states, only Romania and Bulgaria recorded lower average prices (55 and 53 per cent of the EU average, respectively). Non-EU member states from the Western Balkans are also very cheap compared to the EU, with 57 per cent of the EU average price levels in Montenegro and Albania. So, Poland is still closer to these states than to the countries of northern Europe, such as Luxembourg, Ireland, and Denmark, where the average price levels in 2019 reached 130 per cent of the EU average or more. In Norway, Iceland, and Switzerland, which remain outside the EU, the average price levels for the same categories of products and services were even higher, reaching 150 per cent of the EU average or more.

In Poland, many types of products are among the cheapest in the European Union. In the case of food and non-alcoholic beverages, only Romania is cheaper (the prices of these products in Poland reach 70 per cent of the EU averages). Even in the Western Balkans food and beverages are more expensive than in Poland. When it comes to alcoholic beverages and tobacco products, only Bulgaria is cheaper than Poland.

The cost of durable goods varies less between the individual EU member states. In the case of consumer electronics (computers, audio systems, other electronics products, and accessories) prices range from 91 per cent of the EU average in Poland to 111 per cent in France. Meanwhile, in the case of clothing, footwear, and textiles price levels range from 76 per cent of the EU average in Bulgaria to 132 per cent in Denmark. Textiles are even more expensive in Iceland, which is a non-EU country (almost 139 per cent of the EU average). In this respect Poland is a relatively cheaper country. As in the case of consumer electronics, the prices of clothing and footwear in Poland reach 91 per cent of the average level in the EU.

Eurostat data also indicate that Poland is among the European countries with the lowest vehicles prices. The average prices of personal transport equipment (which in practice means cars) range from 82 per cent of the EU average in Slovakia (compared with 84 per cent in Poland) to 121 per cent in Ireland.

The same applies to many services, such as transport services or services related to health care. The differences in price levels in this area are significant. With regard to transport services, the average cost in the EU member states ranges from 51 per cent of the EU average in Bulgaria (compared with less than 60 per cent in Poland) to 146 per cent in the Netherlands. Even greater differences are recorded in the case of paid health care services. Poland is among the cheaper countries. The average prices of health-related services are the lowest in Bulgaria (only 33 per cent of the EU average) and the highest in Ireland (166 per cent of the EU average). The prices of health care services are even higher in Switzerland and in non-EU Nordic countries (Norway, Iceland).

Poland is also among the countries with the lowest prices of housing maintenance services, including the price of heating, reaching 40 per cent of the average EU prices. Only Bulgaria is cheaper than Poland.

Due to these differences in price levels, the level of consumption in the poorer countries — with cheaper goods and services — is actually higher than what would be indicated solely by the value of the “consumer basket” expressed, for example, in the EUR. This also applies to Poland. According to data presented by Eurostat, in 2019 the average level of the Actual Individual Consumption per capita in Poland, expressed in Purchasing Power Standards, amounted to 79 per cent of the European Union average.

Last year, the level of consumption in Poland was still lower than in Slovenia (81 per cent of the EU average), Czechia (85 per cent), and Lithuania (90 per cent), but — surprisingly — the same as in Romania, which is generally considered to be poorer than Poland. This is because Romania is the fastest at catching up with the European Union average in terms of consumption, taking into account the purchasing power of the local currency. Back in 2009, the average consumption level in Romania amounted to a mere 53 per cent of the EU average. At that time, only Bulgaria was poorer. Over the decade, the level of consumption increased by 16 percentage points, and in terms of consumption Romania exceeded the levels recorded in Estonia, Latvia, Hungary, Croatia, Slovakia, and recently also Greece. The increase in consumption recorded during the same time in Poland (from 66 to 79 per cent of the EU average) is also significant but nonetheless smaller.

The European average is shaped not only by increases in consumption in countries such as Romania and Poland, but also by the stagnation and even regression, mainly caused by the consequences of the financial crisis in 2008. This deterioration particularly affected the residents of Greece, where the average level of consumption — taking into account purchasing power parity — dropped from 108 per cent of the EU average in 2009 to 77 per cent in 2019. Meanwhile, in Spain consumption reached the average EU level in 2008, falling back to 91 per cent in 2019. In Italy, which has been plagued by crisis for a number of years, the level of consumption fell below the EU average last year.

The crisis that has affected consumers in Greece, Spain, or Italy in recent years is not the only reason why consumption levels in countries such as Poland or Romania are now approaching the EU average at a faster rate. Due to the nature of statistics, another factor contributing to these changes was the departure of the United Kingdom, which was wealthier the EU average.

The differences in prices and consumption levels are important risk factors for the functioning of the common currency, since it is impossible to rule out sudden adjustment processes, for example, in the form of rapid price increases, especially in places where there are no market barriers. In recent years, though, such changes have not been too abrupt. For example, during the last decade the average price of food and non-alcoholic beverages in Poland (calculated according to purchasing power parity) increased — in relation to the average EU price levels — from 63.1 per cent in 2009 to 70.1 per cent in 2019.

During the same rime time the prices of alcohol and tobacco products in Poland increased from 70.2 per cent to 73.8 per cent of the EU average, while the prices of clothing and footwear rose from 87.2 to 91.2 per cent of the EU average. The prices of consumer electronics saw a steeper increase (from 82.1 to 90.5 per cent of the average EU level), while the prices of transport services declined (a decrease from 64.3 to 59.7 per cent of the EU average). The costs of utilities necessary for housing maintenance (water, electricity, and other fuels) also decreased (from 42.3 to 40.3 per cent of the European Union average).

Over the last ten years the level of individual consumption in Poland (based on purchasing power parity) has increased significantly, moving closer to the average of the European Union member states. However, the price structure still differs from that observed in the other countries, and especially in the wealthier EU member states.


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