Feeling richer, Eastern Europeans go on binge

Eastern Europeans, enjoying rising purchasing power, stormed the region's newly built shopping malls in record numbers ahead of the holiday season, snapping up consumer goods not long ago out of their reach.

Business leaders across the region reported an unprecedented holiday season sales surge which economists attribute to the region's rising purchasing power and firmer consumer confidence with the EU enlargement on the horizon.

From Prague to Warsaw to Budapest, the hottest item this holiday season has been the DVD player. "Everything that has anything to do with DVDs has been selling well," said Jean-Luc Masset, managing director of Carrefour in the Czech Republic and Slovakia.

"We noticed a sharp increase [in sales] from December 2001," said Dorota Patejko, spokeswoman for French supermarket chain Auchan, adding that traditionally December sales volumes are 10 times greater than the monthly average.

In the Czech Republic, big retailers reported a similar story. Swedish furniture retailer Ikea, which has three stores in the country, expects a 7 percent increase in December sales from the same month in 2001 while British supermarket giant Tesco and its French rival Carrefour also noticed particularly strong sales.

In Hungary, supermarkets and shopping malls are also rubbing their hands with satisfaction with December sales. At the West End City Center, one of the biggest malls in Budapest, customers spent 18 percent more than last year in the run up to the Christmas holiday, director Peter Posch said.

Economists said that the spending spree was the result of Eastern Europeans feeling richer, which was sustaining consumer confidence amid the global economic downturn. "Despite high unemployment, households are optimistic," said Kamil Janacek, chief economist at Komercni Banka in Prague. "They think their situation is going to improve, it's the contrary to the situation in Germany," he said.

However, improving purchasing power is a greater factor for the new-found fondness for holiday shopping binges than the future enlargement of the European Union.

The Eastern European countries of Poland, Hungary, the Czech Republic, Slovakia, Slovenia, Lithuania, Latvia and Estonia, plus Malta and Cyprus, have been invited to join the European Union in 2004.

In the Czech Republic the average salary rose 7.4 percent in the third quarter of 2002 from the same quarter in 2001. In Hungary, take-home pay in November rose 12.5 percent from the same month in 2001 thanks largely to a 50 percent pay rise for civil servants. Purchasing power has also been kept strong by relatively low inflation, which 10 years ago reached 70 percent per year in the region.

Meanwhile, the region's currencies have strengthened ahead of EU enlargement, which has made it cheaper for Eastern Europeans to buy imports, especially electricity. With prices stable and currencies firm, the region's central banks have been able to slash interest rates, lowering the cost of borrowing.

Consumer credit has also become easier to get, further boosting consumer spending. "These loans are up 70 percent this year at Komercni Bank," Janacek said.

Consumer credit is particularly popular with the region's young, contrary to older generations which were not exposed to such financial facilities under communism. Such loans are used in particular to buy consumer electronics, which remain a minor luxury in a region where total salaries are rarely more than 500 euros per month.