Sinking public trust in government led to the third straight decline in the consumer confidence index in February, according to market researcher Gfk Ukraine’s monthly survey of households.
Although the size of Ukraine’s economy continues to grow with gross domestic product rising by 4.5 percent in 2010, the index sunk by 7 percentage points because “Ukrainians expect things to get worse,” the March 17 GfK Ukraine report said.
“The data shows people are increasingly feeling they don’t have much to live on,” said Iryna Bekeshkina, acting director of Democratic Initiatives, a policy center in Kyiv. “Rising prices on household utilities and the impending April 1 date when the new tax code comes into force as well as other factors combined could trigger public protests.”
Rising prices on household utilities and the impending April 1 date when the new tax code comes into force as well as other factors combined could trigger public protests.”
– Iryna Bekeshkina, acting director of Democratic Initiatives.
Overall, the public’s economic expectations for the next five years, one of five indices that make up the index, lost 6 percentage points in February and sunk by a whopping 14 percentage points in President Viktor Yanukovych’s constituent base in eastern regions of Ukraine, GfK Ukraine reported.
“Consequently, [the decrease in long term economic expectations] led to the decline in the propensity to consume, which might slow down the growth of domestic demand,” said Hlib Vyshlinsky, GfK Ukraine custom research director.
“Sharp decline of the trust in the government affected consumer mood decline, despite economic recovery.”
Consumer confidence, which measures Ukrainians’ attitudes about current and future economic conditions, is considered more of a political, rather than an economic, barometer in Ukraine.
Consumer spending in Ukraine drives 60-65 percent of economic growth, according to investment bank Astrum.
“We associate this worsening in consumer sentiment mostly with increased utility prices and with the negative impact of news and gossip about price rises and deficit of some socially important goods,” a March 18 Astrum briefing said.
Estimates show that private consumption was 62 percent of gross domestic product in 2010, or $84 billion.
Private consumption has been as low as 54 percent of gross domestic product in 2004, during the tumultuous presidential election that led to massive street protests because of vote rigging.
Since there are few good paying jobs, people create jobs for themselves.”
– Iryna Bekeshkina, acting director of Democratic Initiatives.
In the U.S. for instance, over 70 percent of what is produced – about $10 trillion – is consumed by Americans.
Still, the index decline has reached year-end 2009 levels, when the nation was still reeling from the global financial meltdown.
Bekeshkina said that declining consumer confidence could impact small businesses that provide petty goods and services.
“Since there are few good paying jobs, people create jobs for themselves,” Bekeshkina said of micro-business owners. “But their bottom line gets hit as consumers spend less.”
Consumer confidence took the biggest nosedive in cities with populations of more than 500,000 people – by 25.4 percent. Economic expectations and propensity to make large purchases significantly decreased among big city residents.
GfK Ukraine’s consumer confidence index is based on a monthly survey of 1,000 households and is a composite of five separate indices.
Kyiv Post staff writer Mark Rachkevych can be reached at [email protected].
