Frothy consumer spending has helped insulate Russia against the external headwinds that are cramping economic growth. But as a three-month slowdown in retail sales growth deepens, it appears that even stoic Russian shoppers are beginning to feel the pinch.
Data published by the Russian federal statistics service showed retail sales increasing by 3.8 per cent year on year in October, the slowest rate since February 2010. It followed retail sales growth of 4.3 per cent in August and 4.4 per cent in September and reveals an accelerating decline in consumer confidence that is undermining Russia’s economy.
A 7.3 per cent increase in retail sales in the first half of 2012 helped Russia tough out the global economic slowdown and post a 4.5 per cent rise in gross domestic product in the first half of the year. But the slowdown in consumer spending is putting the brakes on the economy, with GDP growth shrinking to 2.9 per cent in the third quarter.
Analysts say a rise in inflation spurred by a bad harvest and hikes in utilities tariffs is eroding disposable incomes in Russia and discouraging non-discretionary spending. Prices rose by 6.6 per cent in September and 6.5 per cent in October, exceeding the central bank’s 5 per cent to 6 per cent target for 2012.
Faltering retail sales are bad news for Russian banks, which have been reaping profits on the back of a surge in consumer lending. They are also discomfiting for international retailers looking to Russia to offset sluggish demand in crisis-hit Europe.
After a 39 per cent surge in Russia’s new car market in 2011, international auto makers had already braced for a slowdown this year. However, with car sales rising by just 5 per cent year on year in October, against an average of 13 per cent in the first ten months of the year, there is a risk that the decline in growth will be worse than expected.
However, even if Russia is heading into an economic slowdown, ordinary people are better positioned to cope with hard times than they were during the 2008 crisis.
A recent poll conducted by the Moscow-based Levada Center revealed that although poverty levels are still high, wealth standards have risen in Russia over the last four years.
Of the 1,516 Russian residents questioned, 9 per cent said they could barely afford to buy enough food – down from 14 per cent in 2007 , the last year before the crisis. Half of the residents could easily afford food and clothing compared to 37 per cent in 2007. Those easily able to buy durable goods has risen to 19 per cent from 15 per cent before the crisis.
A surprisingly high 64 per cent of those polled said they had no savings – a sign both of high poverty levels and of Russians’ willingness to spend every ruble they earn regardless of the economic times.
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