Purchasing power forecast of Ukrainians for 2019

Author : Yuriy Hryhorenko

Source : 112 Ukraine

The purchasing power is still declining, since the income growth of Ukrainians is soared by the inflation
13:00, 14 January 2019

Open source

The income of the Ukrainians is increasing, although we forecast a lower rate of some 10-15% for  2019. However, the purchasing power is still declining, since the income growth of Ukrainians is soared by the inflation.

Incomes of the Ukrainians increase, but this growth would slow down

National Bank of Ukraine (NBU) noted that in 2018 the financial condition of households continued to improve (for the second year in a row). As of the first half of 2018, the real disposable income of the population grew by 9.8%, but so far, this is just 82% of the 2013 level. The main engine of growth is wages, which increased by 26%, most significantly in industry, in transport, in the financial sector, and in public administration. According to the State Statistics Service, the average salary for January-November 2018 amounted to 310 USD (+ 25.3%).

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But the 2018 wage growth rate would not repeat in 2019. According to the IMF estimates, in 2017, wages increased by 37%, in 2018, they grew by about 23%, and for 2019–2020, the Fund predicts growth at the level of 17.2 and 11%, respectively.

The NBU also expects a slowdown in wage growth in Ukraine: nominal wages by 16% in 2019, and by 10% in 2020, respectively (or by 7 and 5% in real terms). The reasons are a decrease in labor migration, a slowdown in the growth of the minimum salary in the public sector. The IMF memorandum for 2019 prescribes a full freeze (at the level of 2018) for civil servants' wages and limits the growth of public sector wages (9.4%).

Related: IMF worsens economic forecast in Ukraine in 2018

"The growth of the average wage in the country would slow down. In 2018, it grew at the expense of the "internal reserves," but now the state does not have the needed means to raise salaries for the state employees and public sector enterprises. Usually, during the election campaigns, salaries for the state employees and social benefits are increased significantly, but this time, there is simply no money for it. In 2019, the minimum monthly wages would be moderately increased (150 USD from January 1), but the private sector cannot afford high wage growth and should gradually implement the plan of the minimum wage growth," Oleksiy Doroshenko, director of the Ukrainian Association of suppliers of commercial networks, is convinced.

Labor migration, which brings a minimum of 10 billion USD per year, is the most important factor in foreign and domestic economic policy. The demand for labor force from Ukraine remains high, and this is a key risk factor for the Ukrainian employers. This year, many domestic companies would be forced to revise the salaries of their employees.

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"Based on the comments of our clients, on average, in 2019, wage growth is provided at the level of 15-20%. Wage growth is partly slowing due to a decrease in the migration of Ukrainian experts and specialists. It is about skilled and narrow occupations. If we talk about working specialties, the outflow will increase, and the slowdown is unlikely to occur," Tetiana Skachko, director of Smart Solutions HR-provider, emphasizes.

The key factors that affect the dynamics of wages and incomes are the stability of the national currency, shortage of personnel of a particular specialization, the financial capabilities of the companies, etc. "At the same time, the internal labor migration might also increase while maintaining current imbalances in the labor market. I expect that with relative stability of external conditions, the total incomes of workers would grow by an average of 10-15% per year. In addition, employee benefits will also be affected by toughening inspections by regulatory authorities," Viktor Shulik, director of the market research department of the IBI-Rating agency, assures.

The situation with the pensions is still more difficult. From January 1, the minimum pension has increased by 6 USD (so now it is 59 USD) for people over 65 years old, with work experience of at least 30 years for women and 35 years for men.

Related: Why Ukraine's economic slowdown is a natural process

Consumer’s moods of 2018

The consumer moods and purchasing power are constantly evaluated by analytical companies. And certain improvements could be observed.

According to Kantar TNS CMeter analysts, in 2018, an average Ukrainian spent 240 USD monthly, which is 20% more than in the previous year. At the same time, the average percentage of free funds among Ukrainians rose to 27% (+ 15% by 2017). The cluster of those who only have enough money for nutrition only has decreased by 22%, while the declared costs for the utilities have grown by 8%.

In addition, the Nielsen consumer confidence index continued to grow, and in the third quarter of 2018 reached 64 points (+2 points compared to the second quarter).

In turn, in November 2018, the consumer sentiment index of GfK Ukraine increased after a significant fall in October: the index of the current personal financial standing and the expediency of large purchases improved. The index was 59.8 points, which is 2.9 points higher than the October figure.

Will purchasing buying power fall?

The income growth does not mean the increase in purchasing power. Oleksiy Doroshenko notes the purchasing power is an objective indicator of the living standard. The growth of wages is one thing – it might be easily swallowed by the inflation, and the other is the possibility to buy something for this money.

Related: How to attract investors to Ukrainian economy in 2019?

As Viktor Shulik notes, in 2019, expenses that can be considered mandatory will increase. First of all, it is expected that the cost of services for housing and communal services will increase due to the declared increase in energy cost and transport. The expected monetization of the subsidies and revising the criteria for obtaining these subsidies are very questionable and uneven. Many current subsidies recipients would be forced to pay for heating and other utility services by themselves in 2019, and this will reduce the real disposable family income by 2-3 thousand per month (during the heating season). In October 2018 the government decided to raise the price of gas for the population by 23.5%.


Related: Main reason for economical weakness of Ukraine

"The income of the Ukrainians is growing faster than the official inflation, but the purchasing power is still declining. This is due to the fact that prices for basic foodstuffs are growing faster, and households still spend 50% of their income on food," Oleksiy Doroshenko underlines.

According to him, general inflation will decline in 2019 (7.4% is set in the 2019 state budget), and the rise in food prices, in particular, will be lower than in 2018. If in 2018 the cost of basic products increased by 22%, then in 2019 this figure will be 12-13%, and the general inflation will be about 9%. But the purchasing power will not grow, it will simply decrease at a slower pace than in 2018.

Related: Ukrainian pension reform is symbol of ignorant economic policy

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