Economic Policy Review ISSN 1313 - 0544

Households’ Income and Expenditures in 2010

Author: Krassimir Petkashev / 06.04.2011
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It seems that economic growth in the last quarter of 2010 (2.1% on annual basis) was not sufficient to support income growth. This becomes clear from the NSI data on income, expenditure and household consumption, which were published in the beginning of the week. In the last quarter of 2010, a person has had an average of BGN 924, or 36 BGN less than a year earlier, when the income was BGN 960. In the structure of earnings still are dominating the salary and pensions as salary is amounting BGN 480 and pensions - 282 BGN. Unlike pensions, which are even slightly increasing, in wages there is a decrease (1.3%). Income from self-employment per person in the household is 55 EUR per person.

Income growth will hardly happen in this environment. Before the crisis there was a pressure from employees when setting the wages, pressure that now is gone. Then many new jobs’ were created, there was increased demand for labor and the requirements for higher wages were difficult to be stopped by employers. Currently the situation has changed. The labor market has shrunk; unemployment has remained at relatively high levels, which hinders these processes. Employers have bigger choice in employment and thus dictate the terms of the negotiations in their favor.

At the same time, dwindling incomes logically lead to a contraction in household spending. If in the fourth quarter of 2009, a person has spent an average of BGN 883, in the same quarter of 2010 costs were reduced to BGN 866. Half of them are for food and housing (energy, fuel and water). Out of all costs, only those for food, alcohol, cigarettes and taxes are higher compared to those in 2009.

It is clear that in order to start working economy needs consumers to begin spending more confidently. Last year it did not happen – the GDP data showed a contraction in individual consumption in each quarter of 2010 (on annual basis). Prospects for 2011 are that demand will still support the economy, although it is difficult to predict by how much. Uncertainty remains high. The proceeding increases in oil and food prices on international markets, weak inflow of foreign investment and the populism in the government's actions hinder growth and return of consumer confidence. There is no sound evidence for the labor market revival.

The graph below shows that the level of income and expenses remained relatively constant over the past two years. The difference between income and expenditures appear to be savings which are progressively reduced in 2010. This can be interpreted in two ways. On the one hand it may indicate that households are starting to look more optimistic of the future and reduce precautionary savings. On the other hand it may be a sign for the opposite trend – the income cannot cover rising expenditures.

 

Source: NSI