Swedbank: Sharp decline in private consumption receding but still weak
While the sharp decline in private consumption is receding, private consumption still remains weak, Swedbank chief economist Tõnu Mertsina has said. When wage compensation measures end in June, a sharp increase in unemployment will deal an additional blow to consumption.
"Statistics concerning card payment turnover show that private consumption in Estonia fell sharply in April and May. The deepest decline took place at the beginning of April, after which it gradually eased," Mertsina said, adding that while in the first week of April, the turnover of card payments decreased by 36 percent year-on-year, then by the last week of May, the decline had decreased to only 1 percent.
Mertsina said in a press release that card payment turnover has improved in all 15 major expense groups. "While in April, card payment turnover increased only for the purchase of food, which is approximately a fifth of the household consumption basket, then in May, there were already four cost groups exhibiting growth - food, furnishing and construction goods, sports goods and electronics," he added.
According to the economist, the turnover of card payments for the purchase of several goods and services - for example, clothing, electronics, sports goods, beauty goods and services and purchases in other various stores - improved sharply with the opening of shopping centers.
"As of the end of May, card payments in all tourism-related services were in sharp decline," Mertsina said, adding that in the first week of June, no significant improvement had yet been seen.
The economist said that less cash is still withdrawn from ATMs than at the same time a year ago. "This shows that the decline in private consumption is receding from the slump at the beginning of April, but remains weak," Mertsina added.
"The decline in consumption has increased people's savings. The growth of Swedbank's private persons' demand deposit portfolio, which slowed down from April last year, accelerated again after the declaration of the emergency situation," the economist said.
According to Mertsina, the growth of the deposit portfolio slowed down slightly by the end of May, but remained very strong. "The reason for the slowdown in the growth of the deposit portfolio in May was, on the one hand, the decline in consumption, but also the large increase in the number of recipients of Unemployment Insurance Fund's (Töötukassa) wage compensation. At the end of May, 19 percent of total employment and, in mid-June, already 20 percent of total employment received wage compensation," he said.
"By the end of May, the number of registered unemployed increased by almost 1,950 people in a month and the unemployment rate by only 0.3 percentage points to 7.8 percent," the chief economist said, explaining that the increase in the number of registered unemployed in one month had not yet had a significant effect on consumption and savings.
According to Mertsina, the situation will change at the end of June when the wage compensation measure ends, adding that it will increase the number of unemployed, slow down the growth of the deposit portfolio of private persons and deal an additional blow to consumption.
"According to our forecast, unemployment will peak in fall and may rise to approximately 15 percent. The decline in consumption is being mitigated by people's bigger savings and better financial situation compared to pre-crisis situation 11 years ago," he said.
Mertsina said that while in 2002–2007 consumption and financial liabilities of Estonians were on average higher than their income, then in the years after the crisis, both indicators have been positive in terms of income. "This supports the fulfillment of people's financial obligations in more difficult economic conditions. At the same time, the distribution of savings in Estonia is very uneven, which is why the economic crisis and unemployment affect people very differently," he noted.
"The turnover of card payments is an indicator of private consumption behavior because individuals make approximately 40 percent of all private consumption expenditure with payment cards. The share of debit and credit cards issued by Swedbank in Estonia is 61 percent, on the basis of which the consumption behavior of Swedbank's customers could be extended to the whole of Estonia," Mertsina added.
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Editor: Kristjan Kallaste