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Romania, Above Eight EU Member States in Terms of Actual Individual Consumption

Romania, Above Eight EU Member States in Terms of Actual Individual Consumption

In international comparisons of national accounts data, such as GDP per capita, it is desirable not only to express the figures in a common currency, but also to adjust for differences in price levels. Failing to do so would result in an overestimation of GDP levels for countries with high price levels, relative to countries with low price levels.

While GDP is mainly an indicator of the level of economic activity, actual individual consumption (AIC) is an alternative indicator better adapted to describe the material welfare of households. Countries’ volume indices of AIC per capita can be found in the right-hand part of Table 1. Generally, levels of AIC per capita are more homogeneous than GDP but still there are substantial differences across the EU Member States.

Luxembourg recorded the highest level of AIC per capita in the EU at 44% above the EU average, followed by Germany (20% above), Denmark (19% above), Austria (17% above) and Belgium (16% above). In 2021, nine Member States recorded AIC per capita above the EU average. 

The lowest levels of AIC per capita were registered in Bulgaria (35% below the EU average), Hungary (30% below), Slovakia (29% below), Croatia (28% below) and Greece (25% below).

Over the last three years, AIC per capita relative to the EU average has changed in the majority of Member States. A clear increase was registered in Bulgaria (65% of the EU average in 2021 compared with 58% in 2019), Romania (84% vs 78%), Croatia (72% vs 67%), Latvia (76% vs 71%), Estonia (80% vs 76%), Poland (84% vs 80%), Lithuania (97% vs 93%) and Denmark (119% vs 115%). In contrast, the most noticeable decreases were recorded in Ireland (88% in 2021 vs 94% in 2019), Spain (85% vs 91%) and Malta (83% vs 86%).

Surprisingly, Romania ranks above eight other EU Member States in Actual Individual Consumption, the key factor being that the relative price level went down almost 51% below the EU average. So, for 2021, we are placed on a par with Portugal and Poland, just behind Spain, Slovenia and the Czech Republic (85%). At the same time, in terms of AIC we stand above eight other Member States: Malta (83%), Estonia (80%), Latvia (76%), Greece (75%), Croatia (72%), Slovakia (71%), Hungary (70%) and Bulgaria (65%). 

Luxembourg has the highest price levels among the Member States, 53 % above the EU average. However, the EFTA countries Switzerland, Iceland and Norway have higher price levels, at 77 %, 62 % and 56 % above the EU average, respectively. The EU Member States Ireland, Denmark, Sweden, Finland, and the Netherlands have price levels more than 20 % above the EU average. Austria, Belgium, Germany, France, and Italy are the other EU Member States with price levels above the EU average.

Exchange rates are crucial in determining price levels, and exchange rate movements consequently often have a big impact on the development of price levels over time. In fact, several of the major price level changes observed between 2019 and 2021 can be at least partly explained by fluctuations of a country's currency against the euro.

That is why the stability of RON relative to the euro is paramount in maintaining the level of living, aside from the fact that Romania imports a lot of merchandise from abroad. The downside is that the trade deficit tends to widen and is now reaching values equivalent to 1% of GDP per month.

 Photo source: PxHere



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