Euro crisis causes CEE cities to slide down cost of living index

By bne IntelliNews June 13, 2012

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Thank the unstable economic situation for making it a bit cheaper to relocate your employees to Europe. Consultancy Mercer's annual "Cost of Living" report for 2012 has been released, and for the most part Europe's cities, and cities in Central and Eastern Europe in particular, all dropped in the rankings, mainly due to the knock-on effects from the Eurozone crisis.

"All cities are measured against New York City," Nathalie Constantin Metral, principal at Mercer, tells bne. "In New York, prices have increased more than in the majority of European cities, which has also contributed to move the European cities down."

Mercer complies its "Cost of Living" rankings every year, mainly to give international companies a ballpark figure for analyzing expenses. The report measures the comparative cost of living for expatriates in 214 major cities, comparing the cost of over 200 items in each location, including housing, transport, food, clothing, household goods and entertainment. New York City is used as the base city for the rankings and the US dollar as the base currency. Because of this criteria, cities can be effected by the relative strength of the relevant currency against the US dollar over the 12-month period (March 2011 to March 2012).

The top five cities - Tokyo, Luanda, Osaka, Moscow and Geneva - haven't moved many places from the previous year. Neither have the bottom five - Karachi, Islamabad, Managua, Bishkek and La Paz.

Moscow retained its place as the most expensive city in Europe - the top five also include Geneva (5), Zurich (6) Bern (14) and Oslo (18) - though was down one place from number 4 in last year's ranking. Others from the CEE/CIS region that made it into the top 50 were St Petersburg at 28 and Baku at 49.

No Central or Southeast European city cracked the top 50 - Prague was the highest placed at 69, and it showed one of the biggest slides, down 22 places. Following Prague, Bratislava came in at 79 as did Istanbul (down from 57 and 70 respectively), Almaty at 81 (80), Riga at 97 (88), Kyiv at 102 (94), Zagreb at 130 (100), Tallinn at 131 (124), Vilnius at 148 (133) and Ljubljana at 151 (140).

Further down was Budapest at 142, falling from 113 in last year's survey. Perhaps most surprising result for the region was Warsaw, which was way down the list at 153, down significantly from last year's 102 spot. At 207, Skopje, Macedonia, is the least expensive city for expats in Europe.

The strength of the Swiss franc against the US dollar is why so many Swiss cities placed high compared with their euro or other currency neighbours. Compared with New York City, most European cities have seen a decline in the cost of living due to the weakening of the euro and the difficult economic situation across Europe. Where the ranking has gone up, an increase in accommodation prices or VAT is usually to blame.

Accommodation is often the most expensive factor international companies have to contend with when setting compensation allowances. Housing price drops in countries badly hit by the Eurozone crisis, including Greece, Italy and Spain, has led to a drop in ranking for cities like Rome (down 8 spots to 42), Athens (down 24 spots to 77) and Madrid (down 18 spots to 78). "Mercer's international Cost of Living basket includes 11 categories of items, including housing, food, transport, household goods, sports & leisure," Constantin Metral says. "As housing is the most heavily weighted items in the Mercer basket, any change in this category greatly impacts the results."

A weakening of their local currencies, along with volatile markets and stunted economic growth means even non-euro CEE countries are contending with a drop in their cost of living. How many CEE citizens have actually felt that drop is a question for another survey.

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