In this article, we will be taking a look at the 25 most expensive countries in Europe. To skip our detailed analysis, you can go directly to see the 10 most expensive countries in Europe.
Europe has long been considered the most expensive region to live in, especially Western Europe. However, while the cost of living in Europe continues to increase, it is actually becoming less expensive relative to some other cities, with only 5 spots in the top 20 most expensive cities in the world, as opposed to 10 in 2021. This doesn't mean that Europe is getting cheaper; on the contrary, other cities are getting much more expensive.
2022 has been a tough year for Europe, and this currently shows no sign of abating. The 2022 Russian invasion of Ukraine has had a major impact on European nations, in addition to record inflation rates and rising interest rates to combat said inflation. According to The Economist, the cost of living in the continent increased by 8% year over year. While the Baltic nations have had the highest inflation in the European Union, the average inflation in the euro area was 11.5% in the EU in October 2022. Inflation in Estonia, Hungary and Lithuania were all more than 20% while the lowest rates were in Spain, France and Malta, all between 7% to 7.5%. Other countries facing higher inflation rates included the Netherlands, Poland and Czech Republic, where the inflation rate was between 15% to 17%.
However, the biggest concern for Europe has been drastically rising energy costs as a direct result of the Russian invasion of Ukraine. After pandemic restrictions started to be removed in early 2022 in most European countries, gas demand rose significantly because of which price started to increase as well. However, the real issue began when Russia cut off supply to most European countries, citing their refusal to pay for energy costs in rubles. Russia is the biggest gas supplier by far in the entire country, which means that supply was drastically reduced. Speculation related to additional cuts by Russia resulted in prices increasing even further, all of which has resulted in much higher electricity and heating prices. Since most countries and cities in Europe face tough winters, it has been hard for many residents to be able to afford energy required for heating, with the United Kingdom being particularly hard hit.
While these are recent developments, Europe has always been historically expensive to live in, mainly due to the relatively high standards of living afforded to residents. Taxes and other deductions in European countries are generally high but this allows for highly developed infrastructure in addition to free public healthcare. Higher minimum wages and strict rules and regulations relating to employees because of which costs are higher for companies, and hence, products are more expensive. However, you're unlikely to see most Europeans complain about this, as European countries generally tend to rank among the happiest countries in the world. On the other hand, as energy prices continue to spiral, it is debatable whether this happiness will continue in 2023. For major oil and gas companies such as Shell plc (NYSE:SHEL), Exxon Mobil Corporation (NYSE:XOM) and BP p.l.c. (NYSE:BP) posted record profits as energy prices provided a brilliant windfall for these companies, and even in a 2022 which was devastating for most stocks, the Vanguard Energy ETF was one of the best performing ETFs according to CNBC, returning 62%. Europe, realizing that energy companies had benefited massively from the rise in energy prices, implemented a windfall tax on such companies to tax surplus profits and excess revenues of low-cost electricity producers while mandating a 5% cut in electricity use. In return, Exxon Mobil Corporation (NYSE:XOM) sued the European Union, arguing that the EU exceeded its authority by imposing this tax. The spokesperson of Exxon Mobil Corporation (NYSE:XOM) stated that this tax would discourage investment in Europe by energy companies. It will be interesting to see the outcome of this legal battle and its implications on investment in energy stocks.
According to Ipsos, inflation isn't expected to get better in 2023, while Fitch Ratings has stated that European power utilities will continue to record high revenues due to higher prices and the aforementioned windfall tax or price caps will not be able to prevent these companies from significantly improving their cashflows. Prices for electricity and gas will remain significantly higher as compared to historical values as electricity forward prices in Western Europe are currently close to EUR300/MWh while the historical average used to be around EUR 50-60/MWh.
To determine the most expensive countries in Europe, we obtained each European country's real GDP and GDP by PPP for 2021, with data obtained from the World Bank, and then calculated their ratios. To learn more about why we used this ratio, please take a look at the 35 most expensive countries in the world. So now, let's take a look at the countries where the cost of living is incredibly high, and shows no sign of abating, starting with:
25. Lithuania
Real GDP / GDP by PPP ratio: 0.56
5 year GDP growth rate: 24.9%
Housing pricing in Lithuania is continuing to increase as a result of increasing demand which is being exacerbated by low incomes for most people living in the country.
24. Czech Republic
Real GDP / GDP by PPP ratio: 0.59
5 year GDP growth rate: 15.2%
While it may not be as expensive as most Western European countries, a high standard of living generally means an expensive country and that is true for the Czech Republic as well.
23. Latvia
Real GDP / GDP by PPP ratio: 0.61
5 year GDP growth rate: 16.5%
Education and medical treatment, from medicines to tests and scans, is quite expensive in Latvia, earning it a spot in our list.
22. Greece
Real GDP / GDP by PPP ratio: 0.64
5 year GDP growth rate: 8.5%
Greece was mired in an economic crisis from early 2009 to late 2018 after Eurozone agreed a debt relief program, ending the longest recession faced by an advanced mixed economy.
21. Slovakia
Real GDP / GDP by PPP ratio: 0.65
5 year GDP growth rate: 10.0%
According to Eurostat, the EU's statistics office, Slovakia is the most expensive country among Central and Eastern European countries but based on our methodology, there are a couple of countries in the region which are more expensive.
20. Estonia
Real GDP / GDP by PPP ratio: 0.66
5 year GDP growth rate: 25.9%
Estonia is one of the countries with the highest inflation among EU nations, which will likely allow the country to rank much higher next year in our list of the most expensive countries in Europe. A large portion of this increase in prices has to do with the rise in energy prices.
19. Slovenia
Real GDP / GDP by PPP ratio: 0.67
5 year GDP growth rate: 21.8%
While cheaper than most Western European countries, Slovenia is still among the most expensive countries in Europe especially when compared to other Central or Eastern European countries where the currency isn't as strong and salaries are not very high.
18. Portugal
Real GDP / GDP by PPP ratio: 0.69
5 year GDP growth rate: 8.6%
One of the most popular tourist destinations in Europe because of its Mediterranean climate, Portugal is also one of the most expensive countries in Europe.
17. Malta
Real GDP / GDP by PPP ratio: 0.69
5 year GDP growth rate: 23.7%
Most goods in Malta are imported and the tiny island has relatively little space for housing, pushing up prices in that sector.
16. Spain
Real GDP / GDP by PPP ratio: 0.74
5 year GDP growth rate: 4.8%
Eurostat data recently revealed that Spain is grappling with higher prices from fuel and electricity to travel and food costs.
15. Italy
Real GDP / GDP by PPP ratio: 0.78
5 year GDP growth rate: 7.8%
The average cost of buying groceries is actually higher than the EU, despite being ofe of the biggest producers of food in the continent.
14. France
Real GDP / GDP by PPP ratio: 0.86
5 year GDP growth rate: 14.8%
Paris significantly skews how expensive France is but with a large portion of the population living in the capital, maybe it is valid.
13. Belgium
Real GDP / GDP by PPP ratio: 0.87
5 year GDP growth rate: 19.0%
Belgians drive more to work and heat homes which are often traditionally high-ceilinged, which results in more energy being required as compared to other eurozone countries which is why it is among the most expensive countries in Europe.
12. Germany
Real GDP / GDP by PPP ratio: 0.88
5 year GDP growth rate: 9.8%
Germany is actually not as expensive as most other Western European nations, but that also depends on where you live in the country, with Eastern Germany being relatively cheaper to live in and South Germany being the most expensive.
11. Netherlands
Real GDP / GDP by PPP ratio: 0.91
5 year GDP growth rate: 18.5%
Netherlands has been among the worst hit by inflation in Western Europe, and if the trend continues, it may climb up this list further in the next year.
