Along with consumption, the value of deposits held by Lithuania’s banks is increasing. However, the purchasing power of Lithuanians is thought to be static, while the country’s emigrants have been transferring less and less money to their relatives at home. According to “Lietuvos žinios”, fellow Lithuanians are saving and spending money earned in the shadow market, delfi.lt reported on August 2.
Lithuania’s Gross Domestic Product was up 2.1% year-on-year in the second quarter of 2012, but analysts have drawn attention to the fact that the figure was considerably affected by domestic consumption. Retail sales (excluding vehicles) in the April to June period were up 4% in comparison to the same period in 2011, however, these figures show a distorted view of the Lithuanian economy.
Rokas Bancevičius, a senior analyst at DNB Bank said, “This kind of growth in consumption is surprising for several reasons. Firstly, the average wage has been decreasing for the last three years, but the statistics of resident deposits show that savings are increasing. Secondly, the value of deposits belonging to households held in the financial institutions in June 2012 was almost 1% larger than a year ago”.
Bancevičius added that emigrants’ remittances have a relatively small impact on the Lithuanian economy, noticing that the sum transferred in the first quarter of 2012 was the smallest since the beginning of 2010. It is likely that tourists also contribute to consumption figures, alongside increases to social benefits payments and consumer loans. However, the analyst added, “given the negative changes in real purchasing power, and hardly declining unemployment, retail trade growth in volume suggests that part of the population receives income outside of the official statistics”.
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An underlying thread to the article suggests what is known in Britain as ‘the informal economy.’ It is endemic in most of Western Europe. No names, no pack drill but a top figure in one of the UK’s top trade associations, in the building industry, was asked why the government didn’t clamp down on untaxed earnings. He replied: ‘because they would never get elected again.’
The black economy is the part of the iceberg you rarely see. It will get bigger as distrust of government and banking institutions grows.
In the 1990s, on paper, Liverpool was one of the poorest cities in the EU yet visitors were surprised by the city’s obvious prosperity. Its Jaguar car main dealers sold more vehicles than did top London garages. The stores on Church Street were more profitable than those in central London. The Spanish restaurant chain’s La Tasca was the most profitable of its then near hundred franchises. The reason; the ‘informal economy’
I fully agree with Michael. We need someone like Lidl in Lithuania. Maxima has far to large share of the market – they are spoiled and don´t deliver. Their staff is “fat and happy” and don´t care the least for the customer. OK, Rimi is much better – but they have too few shops.
The reason that there is negative real purchasing power is because unlike in Western Europe, which is firmly in the grip of recession, where food retailers are reducing prices, in Lithuania the cost of food is rising very quickly. Why is it that the cost of food in Lithuania is in many instances higher than in Britain when the minimum earnings there are some 5 x the minimum earnings in Lithuania? Where do the higher costs arise? The answer seems to be not higher costs but higher profit. In Britain and it is the same in France and Germany, food retailers expect to make 5 to 10% profit on food. In Lithuania the profit appears to be far higher. The real problem is lack of competition in Lithuania. When IKEA opens it will introduce competition in the prices of household furnishings. If it is successful, perhaps it may encourage a major Western supermarket company to open supermarkets in Lithuania, not as franchises but directly managed from abroad.