It is misleading to base economic development only on consumption

Eurostat’s indicator of individual consumption suggests that an increase in consumption automatically results in a better standard of living, but this argument does not necessarily hold true. On the other hand, the final consumption-to-GDP indicator used by the World Bank highlights that the countries that consume a lot are not always the richest, and in fact, they are often vulnerable or struggling with war conflicts.

Economic output (GDP) consists of four main components: consumption (C), investment (I), government spending (G) and the foreign trade balance (EX-IM). However, a country’s consumption expenditure may exceed GDP, indicating that the country is using more resources than it is producing. This situation occurs especially when investments, government spending and the foreign trade balance are negative, resulting in an unsustainable economic structure.

Based on data from the World Bank, there are large differences between countries’ consumption indicators. The data also shows that the countries with the highest consumption rates are not at the economic forefront, but often have low incomes or are struggling with war conflicts. In contrast, the wealthiest and most competitive countries, such as Ireland and Singapore, have lower consumption rates, indicating that economic success does not depend only on the amount of current consumption.

There are also significant differences between European countries. In Ukraine, where consumption in proportion to GDP is over 100 percent, the economic situation is unstable. In contrast, the consumption rate in Ireland is only 39.4 percent, which indicates a balanced development of the economy. With its 69.5 percent indicator, Hungary is in a unique position in the region, as it shows a lower rate than its neighboring countries, with the exception of the Czech Republic.

In the debate about the sustainability of economic growth based on consumption, studies by the BIS (Bank for International Settlements) also warn that although consumption can boost the economy in the short term, in the long term, excessive consumption, especially when combined with borrowing, can lead to significant economic imbalances. And these imbalances can set back economic growth, especially if households have to spend a significant part of their income on loan repayments in the future.