GDP per capita, consumption per capita and price level indices
From Statistics Explained
- Data from December 2011, most recent data: Further Eurostat information, Main tables and Database.
This article focuses primarily on gross domestic product (GDP) per capita in the 27 European Union (EU) Member States but also looks at the level of actual individual consumption (AIC) per capita and at countries' price level indices. The analysis covers the 27 EU Member States, EFTA Member States (Iceland, Norway and Switzerland) as well as four EU candidate countries (Croatia, the Former Yugoslav Republic of Macedonia, Montenegro and Turkey), and three Western Balkan potential candidate countries (Albania, Bosnia and Herzegovina, and Serbia).
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Main statistical findings
In 2010, Bulgaria recorded the lowest levels of GDP per capita among EU Member States, at less than half the EU average. The Netherlands was 33 per cent above that average, surpassed only by Luxembourg. Levels of AIC were somewhat more homogeneous, but still showed very substantial differences across EU Member States. As in previous years, Denmark had the highest price level in the EU.
Relative volumes of GDP per capita
Countries’ volume indices of GDP per capita are shown in the left-hand part of Table 1 (per-capita volume indices are explained in Data sources and availability).
The dispersion in GDP per capita across the EU Member States remains quite remarkable. As in previous years, Luxembourg has by far the highest GDP per capita among all the 37 countries included in this analysis and it is more than two and a half times above the EU-27 average, and about 6 times higher than Bulgaria, which is the poorest EU Member State as measured by this indicator. One particular feature of Luxembourg's economy which to some extent explains the country's very high GDP per capita is the fact that a large number of people not residing in Luxembourg but in one of the neighbouring countries are employed in the country and thus contribute to its GDP, while obviously they are not included in its resident population.
The Netherlands comes out second among the EU Member States, at 33 per cent above the EU-27 average, but it is surpassed by EFTA Member States Norway and Switzerland. Ireland maintains its position among the richest EU Member States, but there is a clear downward trend between 2008 and 2010. This can be explained primarily by the development of its nominal GDP, which decreased by more than 13 per cent in this period.
Other EU Member States with GDP per capita of 20 per cent or more above the EU level in 2010 are Denmark, Austria and Sweden. Belgium and Germany are at about the same level, followed by Finland and the United Kingdom, while France comes out well ahead of Italy and Spain which have been at similar levels for several years.
Cyprus, with a GDP per capita marginally below EU-27 average in 2010, remains ahead of Greece, which suffered from the economic crisis in 2010. Slovenia, Malta, Portugal and the Czech Republic are all clustered around 20 per cent below the EU-27 average, well ahead of Slovakia, Hungary, Estonia, Poland and Croatia (one of the EU candidate countries) which are around 40 per cent below the EU-27 average. Poland shows a clear improvement in its relative position, while Lithuania and Latvia, on the other hand, show a decline in GDP per capita between 2008 and 2010.
Romania and Bulgaria have GDP per capita levels just below 50 per cent of the EU-27 average. Turkey, an EU candidate country, was above the level of Romania and Bulgaria.
Five countries have a GDP per capita of 60 per cent below the EU-27 average or less. These are the two EU candidate countries Montenegro and the Former Yugoslav Republic of Macedonia, and the three Western Balkan countries Serbia, Bosnia and Herzegovina, and Albania. The relative position of the latter countries has not substantially changed between 2008 and 2010.
Relative volumes of consumption per capita
While GDP per capita is often used as an indicator of countries' level of welfare, it is not necessarily a suitable indicator for households' actual standard of living. For the latter purpose, a better indicator may be actual individual consumption (AIC) per capita.
In national accounts, household final consumption expenditure (HFCE) denotes expenditure on goods and services that are purchased and paid for by households. Actual individual consumption, on the other hand, consists of goods and services actually consumed by individuals, irrespective of whether these goods and services are purchased and paid for by households, by government,or by non-profit institutions. In international volume comparisons, AIC is often seen as the preferable measure, since it is not influenced by the fact that the organisation of certain important services consumed by households, like health and education services, differs a lot across countries. For example if dental services are paid for by the government in one country, and by households in another, an international comparison based on HFCE would not compare like with like, whereas one based on AIC would.
Countries’ volume indices of AIC per capita can be found in the right-hand part of Table 1.
Generally, levels of AIC per capita are more homogeneous than GDP but still there are substantial differences across the EU Member States. To illustrate this, in 2010, thirteen countries were clustered in the range between 95 and 121 per cent of the EU average, while the levels of GDP per capita for those countries vary between 90 and 133 per cent.
Luxembourg keeps its position as the country with the highest level of AIC per capita in the EU, 50 per cent above the average of the 27 EU Member States. However, while Luxembourg can be said to belong to "a division of its own" in terms of GDP, this is less so for AIC. One reason for this is that the consumption expenditure of people not residing in Luxembourg but in one of the neigbouring countries while working in Luxembourg is recorded in the national accounts of the country of residence.
The EU Member State with the second highest AIC per capita is the United Kingdom at 21 per cent above the average, while its GDP per capita was 12 per cent above the EU average. Conversely, Ireland's AIC per capita was only marginally above the average EU level, while GDP per capita was 28 per cent higher than the average. Ireland, the three Baltic countries and Iceland are the countries which have seen a very substantial decline in their relative position during the 2008-2010 period.
Price levels in Europe
The price level adjustment factors used to derive the volume indices in Table 1 can also be applied in an analysis of countries' price levels. Table 2 shows countries' price level indices to the right, with the EU-27 average at 100, for AIC only. It also shows the exchange rates applied in the calculation of the price level indices. In the following, only the price level indices of AIC will be discussed, since this is closer to the concept of price levels that most people are familiar with than a price level indicator based on GDP.
Denmark has the highest price level, 47 per cent above the EU average and remains by far the most expensive EU Member State. However, EFTA Member States Norway and Switzerland overtake Denmark in 2010 with price levels that exceeded the overall EU level by more than 50 per cent. Other countries with price levels more than 20 per cent higher than the EU-27 average include Luxembourg, Sweden, Ireland and Finland. Belgium, France, Austria, the Netherlands, Italy, Germany and the United Kingdom all have price levels of up to 20 per cent above the average.
The case of Iceland is particularly interesting, as the country used to be the most expensive in all of Europe. The most important factor contributing to this remarkable development is the very strong depreciation of the Icelandic króna in the years up to 2009. In 2010, price levels have increased again due to a strengthening of the króna.
Spain, Greece and Cyprus have price levels slightly below the EU average, followed by Portugal and Slovenia.
At the lower end of the table, we find several countries with price levels clustered between 25 and 50 per cent below the EU average: Malta, the Czech Republic, Estonia, Slovakia, Latvia and two candidate countries Croatia and Turkey. Lithuania, Hungary, Poland, Montenegro, Bosnia and Herzegovina, and Romania also fall within this range.
The lowest price levels – less than half the EU average – are found in Serbia, Bulgaria, Albania and in the Former Yugoslav Republic of Macedonia.
Exchange rates are crucial in determining price level indices, and exchange rate movements consequently often have a big impact on the development of price levels over time, as we have seen in the case of Iceland. In fact, several of the major price level changes observed between 2008 and 2010 can be at least partly explained by fluctuations of country's currencies against the euro. These movements have been more substantial between 2008 and 2009 than between 2009 and 2010. Between 2008 and 2009, the national currencies of Iceland, Poland, Serbia, Romania, Turkey, the United Kingdom, Hungary and Sweden depreciated more than 10 %. Between 2009 and 2010 the currencies of almost all non-euro countries appreciated against the euro, in particular in Sweden, Switzerland and Norway. An exception is Serbia: the dinar continued to depreciate in 2010.
The last three rows in Table 2 show the coefficients of variation of the price levels for three groups of countries: the euro area (EA-16), the 27 EU Member States, and the entire group of 37 countries. A time series of these coefficients can be interpreted as a rudimentary price convergence indicator.
These figures tell us two things. First, and unsurprisingly, the price dispersion is much more pronounced in the EU as a whole, and in the 37-country group, than in the euro area. Second, while price levels are indeed marginally converging within the euro area, this seems not to be the case in the EU as a whole, or in the complete group of countries.
Data sources and availability
The data in this article are produced by the Eurostat-OECD Purchasing power parities programme. The full methodology used in the programme is described in the Eurostat-OECD Methodological manual on purchasing power parities.
The volume indices of GDP and AIC, shown in Table 1 and in Figure 1, represent the real volume of GDP and AIC per capita. "Real volumes" means that the figures have been adjusted for price level differences across countries, using PPPs, and are expressed in relation to the European Union average (EU-27=100). If the GDP (or AIC) volume index per capita is higher than 100, that country’s level of GDP (or AIC) in per-capita terms is higher than the corresponding level for the EU as a whole. The indices should be interpreted with some caution, allowing for error margins. For example, in 2010, the GDP volume index per capita for Germany was 118, while that of Belgium was 119. In reality, these figures tell us that the GDP per capita is of similar magnitude in the two countries.
Price level indices as presented in this article are the ratios of PPPs to exchange rates. They provide a measure of the differences in price levels between countries by indicating, for a given product group, the number of units of common currency needed to buy the same volume of the product group or aggregate in each country.
Price level indices (PLIs) provide a comparison of the countries’ price levels with respect to the European Union average; if the PLI is higher than 100, the country concerned is relatively expensive compared to the EU average and vice versa. The EU average is calculated as the weighted average of the national PLIs, weighted with the expenditures corrected for price level differences. Price level indices are not intended to rank countries strictly. In fact, they only provide an indication of the order of magnitude of the price level in one country in relation to others, particularly when countries are clustered around a very narrow range of outcomes. The degree of uncertainty associated with the basic price data and the methods used for compiling PPPs may affect in such a case the minor differences between the PLIs and result in differences in ranking which are not statistically or economically significant.
Context
GDP per capita volume indices (on a regional basis - see GDP at regional level) are used in the allocation of Structural funds within the EU. Regions where real GDP per capita is less than 75 % of the EU average (taken over a period of three years) are eligible for support from the Structural funds. Furthermore, real GDP per capita, price levels and price convergence are three of the key "structural indicators" published by the European Commission.
Eurostat is co-operating closely with other international institutions in the production and dissemination of PPPs. It co-operates with the OECD to produce PPP statistics for the OECD countries and with the World Bank and the International Monetary Fund (IMF) to produce global PPP data. See external links below.
Further Eurostat information
Publications
- GDP per capita varied by more than six to one across the EU in 2010 - Statistics in Focus 64/2011
Main tables
- GDP per capita in Purchasing Power Standards (PPS)
- Comparative price levels
- Price convergence between EU Member States
Database
- Purchasing power parities (PPPs), price level indices and real expenditures for ESA95 aggregates (prc_ppp_ind)
- Price convergence indicator (coefficient of variation of comparative price level index for final household consumption in %) (prc_ppp_conv)
Dedicated section
Methodology/Metadata
- GDP per capita in PPS (ESMS metadata file - tsieb010_esms)
- Purchasing power parities (ESMS metadata file - prc_ppp_esms)
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