(MENAFN- Gulf Times) While the bustle of Russians shopping might sound like a harbinger of economic recovery, it's actually a sign people are more willing to cut down on savings and borrow for the purchases they've delayed for years.
Consumer demand, once the mainstay of the economy of the world's biggest energy exporter, is on the mend after a recession and the rouble's meltdown gutted household finances. But with the economic recovery tepid and incomes continuing to sag, people's patience has finally worn out, pushing demand for durables such as cars and smartphones to the strongest in years.
'There's no longer the feeling that the crisis is ongoing and that it will get worse, said Vladimir Tikhomirov, chief economist at BCS Financial Group, a Moscow brokerage. 'And that's allowed some households to reduce savings and increase spending.
The flip side of debt-fuelled spending in Russia is that it's coming at the expense of households' financial security. The savings ratio fell in the third quarter to 5% of incomes, near a level last seen in 2008. Russians had to borrow every fifth rouble they spent in the first half.
Retail sales of non-food items climbed an annual 3.2% last month, surpassing the figure for food by a full percentage point, according to data released on Tuesday. Growth in consumer spending has stalled, with overall retail sales adding 2.7% from a year earlier in November after increases of more than 3% in the previous two months.
Despite rising wages, which account for almost two-thirds of incomes, their gains didn't offset a decline in welfare payments and a drop in money earned off-the-books and from entrepreneurship. Real disposable incomes have now dropped every month but three since late 2014.
Although a third of households viewed their financial situation in the past year as 'good and 'secure, more than a fifth said they faced circumstances that were 'difficult or 'very difficult, having to refrain from some purchases and even barely making ends meet, according to research company Romir.
But after gripping their purses tight for months, Russians are now choosing to crack open the piggy bank and spend the money they have and borrow the rest.
New loans accounted for more than a fifths of household spending on final consumption in the first half of the year, compared with 15 to 18% in 2015-2016, according to the Gaidar Institute and the Russian Presidential Academy of National Economy and Public Administration. Retail loan growth was fastest in regions with a higher concentration of poverty, their earlier report found.
Consumer credit rose 11.2% in November from a year earlier, the fastest since 2015, while nominal wages grew 8%. That's a red flag for the Bank of Russia, which is considering an increase in risk ratios for lenders.
Rate setters are monitoring changes in the behaviour of households since a lower propensity to save could be a risk for inflation.
But the pace of recovery in retail sales shows Russia is experiencing a 'healthy shift toward consumption, according to Igor Dmitriev, the head of the central bank's monetary-policy department.
'Given how far consumption fell during the recession, there is definitely an element of recouping earlier delays in consumption, said Liza Ermolenko, an economist at Barclays Capital in London. 'But labour-market conditions and consumer confidence have improved and consumer lending has picked up. That is likely to support consumption going forward.
MENAFN2212201700670000ID1096265464
Legal Disclaimer:
MENAFN provides the information “as is” without warranty of any kind. We do not accept any responsibility or liability for the accuracy, content, images, videos, licenses, completeness, legality, or reliability of the information contained in this article. If you have any complaints or copyright issues related to this article, kindly contact the provider above.