14 November 2023
The region is particularly feeling the repercussions of rising prices: more than half of respondents to Erste Group’s Money Matters survey in the Czech Republic, Slovakia, Hungary, Romania, Croatia and Serbia said they had been personally affected by inflation.
The squeeze on personal finances is felt across the region — and affects the ability to save for the future: 26 per cent of people in the Czech Republic and 57 per cent of people in Romania say they are unable to save as much as they could compared to the past three to four years.
But due to declining momentum in energy and food prices, eurozone inflation fell to 5.5 per cent in June 2023. The trend is visible further east as well — even if the rates remain higher. In Croatia, the Czech Republic and Slovenia, inflation has already entered single-digit territory, and in Romania, it is close to 10 per cent. In Slovakia, where disinflation is less marked, the headline rate was 11 per cent in June.
In Hungary, where the government has introduced various price control measures to tackle inflation, the decrease is slower, but year-end inflation is expected to be in single digits, as in all CEE countries. And after a torrid 2022, there are signs that real wage growth is picking up across the region, including in the Czech Republic and Slovakia, which were particularly affected at the start of 2023.
Consumer confidence also gives rise to hope. All CEE countries except the Czech Republic and Croatia experienced an improvement in sentiment. The major drivers of the deterioration in the Czech Republic were related to questions over the financial situation, price trends and major purchases over the next 12 months. A decrease in savings also played a role in the decline in sentiment. Hungary still has the lowest consumer sentiment in the region (-34), but it has been steadily improving since October 2022 and is only about half a point behind the second-worst, Slovenia.
Food prices, incomes and the threat to savings
Global food prices reportedly reached an all-time high in March 2022, with the Ukraine crisis, the Covid-19 pandemic and extreme weather conditions contributing to a shortage of supply. Despite their grocery costs being among the lowest in the EU, consumers in CEE spend a greater share of their household income on food and non-alcoholic beverages — 18 per cent in Hungary, 19 per cent in Croatia and nearly 25 per cent in Romania in 2021 compared with an EU average of 14 per cent.
Savers need to consider their options
In the context of such financial constraints, consumers in some countries have struggled to work out how to maximise any savings they may have. In Slovakia, for example, 67 per cent of respondents to the Money Matters survey said they have kept their savings in current accounts and 39 per cent as cash at home; only 29 per cent have purchased stocks and securities. The figures are similar in the Czech Republic (53, 36 and 30 per cent) and even lower in Croatia (39, 19 and 5 per cent).
Guillaume Prache, founder and senior advisor of Better Finance, believes this is partly due to little access to independent advice, a lack of financial literacy and an investment culture that has only recently been exposed to capital market investment. “Diversifying the financial savings of people in the CEE away from bank accounts is a big issue”, he says. “There is an over-reliance on currency and deposit accounts in the CEE compared with the rest of Europe — especially at a time of negative real interest rates and a strong upsurge of consumer price inflation.”
Authorities can help to increase financial understanding
Prache believes that CEE countries should receive greater attention at the EU level to help raise awareness of consumers’ options. The Commission is proposing a new retail investment strategy to help build the confidence of consumers to invest in capital markets. The strategy is well-intentioned, says Prache, but he fears that the name of the latest EU consultations — Options to Enhance the Suitability and Appropriateness Assessments of Retail Investment Services — will lose consumers. “Small CEE organisations don’t have the time, resources and often expertise to decode this European jargon, which will not be translated into the local language”, he says.
What may have more impact and be more relatable, Prache believes, are financial health checks. A report from the think tank New Financial outlines the concept of regular checks for citizens who, when prompted by the government or other independent sources, should consider taking a short financial health check tailored to their age or stage of life. This, the report says, should bring “higher levels of financial literacy, higher financial participation and better financial well-being and resilience”.
Similar ideas could add more, much-needed lines of defence as consumers in CEE prepare themselves for continued financial uncertainty ahead.