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COUNTRY'S PURCHASING POWER LAGS FAR BEHIND THE EUROPEAN AVERAGE

Slovaks have less cash to spend

IN SEVERAL regions of Central and Eastern Europe, people are wealthier than their Western European neighbors - according to a new study that measures citizens' purchasing power.
For example, Budapest residents have fatter wallets than people in Freienbessingen, in the German state of Thuringia. In the Baltic capital cities, residents have more disposable income than those in Italy's poorest community.

IN SEVERAL regions of Central and Eastern Europe, people are wealthier than their Western European neighbors - according to a new study that measures citizens' purchasing power.

For example, Budapest residents have fatter wallets than people in Freienbessingen, in the German state of Thuringia. In the Baltic capital cities, residents have more disposable income than those in Italy's poorest community.

The annual Purchasing Power Europe study by GfK surveys 40 European countries based on residents' purchasing power - their net annual income including state benefits, and how much of that is disposable income.

It found that residents of Bratislava, Slovakia's wealthiest city, have almost twice as much money to spend as those in Bucharest, Romania's richest city. But Slovaks still earn less than half of the average European income.

The average purchasing power of Slovaks stood at €4,889 (Sk163,400), which ranked the country 27th. Compared to last year, Slovakia sank two positions.

The average European purchasing power stands at around €12,000.

But it's not all bad news, Mária Valachyová, research analyst with Slovenská Sporiteľňa, told The Slovak Spectator.

"If you look at the report, only Slovakia's rating has worsened, not the country's purchasing power," she said. "Slovakia is in 27th place, compared to last year's 25th place. Lithuania and Latvia, both countries with high economic growth, have left us behind."

Moreover, GfK compares something like disposable income, which also includes state payments such as unemployment benefits, child support allowances and pensions, Valachyová said. It means that in some countries, state expenses have been rising along with the GDP. That moves them up in the rankings, but it is not always positive in macro-economic terms, she added.

Slovakia's spot below the European average happened despite its exemplary economic growth, which makes it one of the fastest growing economies of the European Union. However, market watchers agree that catching up with Europe in terms of living standards is a long-term process.

"We estimate that Slovakia could reach the current average standard of the European Union in about 10 years," Lucia Šrámková, an analyst with ING Bank, told The Slovak Spectator. "If we account for a growing Europe, the convergence could take more than 15 years."

It is mostly growth in productivity that fuels the process of real convergence, Šrámková said.

"In the last two years, wages showed a surprisingly weak growth, while productivity had a more significant acceleration," Šrámková added.

The fact that Slovakia is still under the European average is closely linked with the country's starting position after it made the switch from a centrally-planned economy to a market economy, according to Valachyová.

"Delaying many reforms in the '90s also slowed down our growth," she said. "Then carrying out the reforms later was actually more expensive than it would have been if they were carried out sooner, and the costs of the delays hit mostly low-income people."

European consumers have a total of around €8,000 billion to spend from their household net income, the GfK survey says. That breaks down into an average purchasing power, or disposable income, of around €11,998 per capita in the 40 countries surveyed.

The ranking is led by Switzerland and Liechtenstein, with an average purchasing power of €27,521, and Luxembourg, with €27,395. Moldova has the lowest purchasing power with a per capita average of €685 yearly.

The survey also pointed out that the purchasing power gap between various Central and Eastern European regions is often significant.

Although the survey is called Purchasing Power in Europe, it is not a measure that could be used to compare the purchasing power of households in individual European countries, market watchers said.

The survey only measures disposable income of households without relating it to price levels in their country, said Šrámková. She pointed to GfK's notice that the survey should be used for business purposes, planning sales and branch expansion, improving branch networking and financial decision-making.

"As for measuring purchasing power, we prefer to look at the GDP per capita measure in the purchasing power standards published by Eurostat," Šrámková said.

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