Sunday, 1 September 2013

A green light for consumer spending

I once pledged that my first trip to Ikea would also be my last; a beautiful design museum with an ugly warehouse underneath it. You see something you really like, then you learn that you need to go to your nearest forest (map supplied), cut down a tree (axe not supplied) and follow the instructions in the box to construct that kitchen table. I like Ikea's style and design, but believe that furniture should be sold finished, not semi-finished.

Anyway, that was years ago. Eddie said he needs a new mattress for his Ikea bed; the old one had springs poking out of it. Mattresses, I reasoned, don't require self-assembly, so we set off for Janki.

The car park was bursting at the seams, with desperate shoppers parked up on verges and traffic islands. We cruised around for several minutes, waiting for a parking space to become available. Once inside Ikea, we headed for the showrooms upstairs,  jam-packed with families on a Grand Retail Experience.

We'd soon found a suitable mattress, the Bjørdsmaärg. It looked good, Eddie felt comfortable on it, the price was some 200zł less than a comparable mattress at Auchan (!), so we pressed on, past many more 'opportunities to buy', to the warehouse. Here in bay 45.11 we found the mattress - rolled up so tight that it needs 72 hours to straighten out. So it should be ready to sleep on... by Tuesday evening.

We joined a long queue (five trolleys ahead of us) at the check-out. Returning to the car, it took 12 minutes to exit the car park, so heavy was the traffic.

Is it like this every week in Janki? Or is it that Varsovians have collectively felt that the worst is behind us, and that recent releases of macroeconomic data are telling us to spend?

Poland's GDP grew by 0.8% year-on-year in the second quarter of 2013, up from 0.5% in the first quarter. Unemployment is nudging down (13.1% nationally, 4.9% in Warsaw), and Poles are feeling less anxious about their jobs than they have for a long while. Consumer spending in the year to July was up by 4.3%... Happy days are here again?

I worry when I see absurdities in the economy. Growth must be both sustainable and balanced. (Translate that into Polish!) Is it? Or is Poland's economic recovery in the same danger as the UK's - over-dependent on consumer spending?

But here, I'm of an optimistic frame of mind. Poland's exports are rising nicely, as imports are falling (the former up 6.0%, the latter down 2.3% in the first half of 2013 compared to the same period last year). The balance of trade is almost level (a mere half-billion euros in the red). Investment in the private sector could do with a boost, but public sector investment is strong - though driven by EU funds.

Should we rejoice and go out spending willy-nilly? We should spend with reason. I believe that some forms of spending benefit the national economy more than others. Buying land and building on it is the best form of investment a consumer can make in their economy. Once you've built (or even bought) a house or apartment, it needs fitting out. And given that Ikea sources many of its products from Poland, it's as good a place to buy from as any.

I also believe that spending money in restaurants is good for the local economy - most of the ingredients are bought locally, and yet most of your cash goes to pay for service and into supporting local jobs.

Spend your money with thought as to the consequences thereof.

This time last year:
Procrastination - is it the same as laziness?

This time four years ago: This time three years ago:
Remembering the outbreak of WWII


student SGH said...

Buying land and building on it is the best form of investment a consumer can make in their economy.

Well, definitely this is the biggest purchase one makes in their life. Some professors of economics would argue and say this is a form of consumption. Unless for rent, or hoping for price appreciation, you buy property to meet your housing needs - hence this is a form of consumption. The only distinction is that you buy something tangible and something which doesn't depreciate merely on account of ageing.

If it is an investment, for sure not a risk-free one. All those who bought flats or houses at the peak of bubble, in 2007 or 2008 now see the value of their investment drop by some 20% and the decline, though slowly, continues.

Excessive demand leading up to a surge in property prices is also not good, as bigger share of GDP is created in construction industry in which labour efficiency is low, complexity in residential housing also is low and the sectors generally lacks innovativeness.

And steep property prices are unfavourable for the economy - the higher they are the fewer consumer can spend, because they either have to save more for a purchase or pay more in mortgage installments - in both situation discretionary spending is reduced and the only beneficiaries are banks, property developers and those who bought properties prior to a bubble...

Michael Dembinski said...

@ Student SGH:

Owning a house outright is preferable to renting once you've retired. A pensioner still paying rent is in a precarious position.

I hold the view that buying some land and investing - putting up a building on it - adds value to the economy.

Bubbles are bad and should be avoided, especially if you feel you're near the top of the market.

Innovation in housing - yes, the sector is ripe for some game-changing idea to come along!