Consumption – Income and Credit

We have considered the change in consumption recently. See here.  Consumption in 2010 was down nearly 12% on the level recorded in 2007.  A key issue surrounding this is whether this is a demand problem – that is, is consumption down because demand is down?

As we saw, up to 2009, demand as measured by net disposable income only experienced a slight fall.  Here is the same graph.

It is clear that a large gap emerged between income and consumption in 2009.  In 2009 when net disposable income fell by €2 billion, consumption fell by around €10 billion. Even in 2008 it is evident that consumption expenditure was flattening out as net disposable income was still rising.  We do not have the 2010 figures yet.  For further details of the data to 2009 see here.

Here is a graph using the Credit, Money and Banking Statistics of the Central Bank.  It should monthly transactions for household consumer credit since 2005.  Positive numbers indicate that consumer credit expanded with negative numbers indicating a contraction.

Since the start of 2009 consumer credit has fallen (repayments on existing debt exceeded new loans forwarded) for every month except June 2009.  Of course, this is a combination of households’ reluctance to demand credit and the banks’ reluctance to supply it.

Since January 2009 the amount of consumer credit extended to households declined from €29 billion to €18 billion.

The jump in the series at the start of 2009 is because the country’s 400 credit unions were added to the Money, Credit and Banking Statistics.    The series was levelling off in 2008 and since 2009 has fallen almost every month.

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