How economic growth influences consumer behaviour in the Baltics

  • 2019-10-22
  • Aaron Mach

Every one of us is a consumer with their own needs and desires. When the economy is going upwards we oftentimes find ourselves having a little more money to spare, and vice versa. When people start consuming more goods of a specific type, they create more demand. This, in turn, normally creates more supply, creates more jobs, puts more tax money in the budgets of their governments, and shapes consumer behaviour. The Baltics have experienced significant economic growth within the last 30 years, but also in the last 10 years. The Baltic States have been among the top economic growers of the Euro-area countries. They came a long way from an era of deficit and planned economy to modern capitalism and financial freedom.

What influences consumer spending

Disposable income (remaining income after deduction of taxes and social securities) is probably the strongest indicator of how consumers use their funds. This income is available to be invested, used, or saved. When disposable income increases, consumers have a wider range of products, services, and hobbies to indulge in. It is also a strong predictor for possible increases in demand. 

Hobbies shape consumer behaviour through interests, passion, and emotions. While many visit their favourite online casino for adrenaline and betting, others purchase expensive golf clubs or pay membership fees. With economic growth, consumers start focusing more on personal desires and when money is scarce, they are more career-oriented. 

Consumer expectations and their confidence in financial stability are strong influencers of consumer behaviour - when consumers believe economic downfall is imminent, they will start saving and create stability in their careers. When they are confident in economic growth and stability, they will make significantly larger emotional purchases.

Income inequality is also a strong predictor because it tells us which sectors have increased purchasing power and whose resources are diminished. It is natural that not all sectors experience that growth at the same time and at the same pace. Changes have a different impact for everyone and that is where income inequality arises. And it is not always a bad thing.

How it impacts the Baltics

Perhaps the largest challenge for Estonia, Latvia and Lithuania is structural and infrastructural - how to increase productivity, create better logistic solutions, add more value, and accelerate growth even further. Without addressing any of these key challenges, Estonia, Latvia and Lithuania will probably not be able to keep on growing for much longer. It is imperative that they face these problems head-on and start building a more productive future. Economic growth enables access to additional funds through consumerism and taxes.  Many of these necessary improvements are hinged on monetary resources. Now is the time to make smart decisions.

Everyday Baltic consumers might notice a slight increase in purchasing power as their salaries have increased, but so have costs, prices, and excise taxes. The most noticeable signs of economic growth for the everyday consumer in the Baltics might be unfelt due to the rising cost of living. All change takes time and Rome was not built in a day.