Russian Households Reluctant to Spend

Russian consumer spending, which came undone quickly during a recession, will take time to put together again. Households continue to embrace thrift even as the ruble tests new highs and inflation at the slowest in history strengthens purchasing power.

While unemployment unexpectedly declined in December and real wages surged more than estimated for their fifth monthly gain, retail sales plunged 5.9% from a year earlier, the Federal Statistics Service said recently. Their decline for a record 24th month was worse than all but one forecast in a Bloomberg survey of 13 economists, whose median was for a drop of 3.7%.

With the economy on the cusp of recovery after its longest recession in two decades, consumers are reluctant to spend.

“People are still in crisis deleveraging mode and are acting thrifty, so any additional income isn’t spent,” said Vladimir Osakovskiy, chief economist for Russia at Bank of America in Moscow. “This supports deposit generation, but at the same time constrains spending.”

Consumer spending, the main driver of Russia’s economic expansion in the past decade, is still so brittle because broader economic gains aren’t translating into improvements for the millions of people who bore the brunt of the recession.

“An increase in poverty is causing a divergence between relatively positive income and unemployment figures and consumption patterns,” said Natalia Orlova, chief economist at Alfa Bank in Moscow.

Real disposable incomes fell the most in four months, shrinking 6.1% in December from a year earlier, according to the statistics service. The median estimate in a Bloomberg poll of nine economists was for a drop of 5.1%.

A poll published early last week by the Higher School of Economics showed the financial situation worsened for 39% of respondents in the past 12 months and improved for only 9%. When asked about the future, 23% believe their personal welfare will deteriorate in the coming year, with 11% expecting it to get better.

“The population has already adapted to the new reality: in other words, tightened the belt by cutting spending as much possible,” Georgy Ostapkovich, head of the Institute for Statistical Studies and Economics of Knowledge that conducted the study, said.

The savings rate, at 10% of disposable income in January-November, remains at almost double the ratio in 2008. Still, it has fallen from 14.3% in 2015, with the central bank mentioning a decrease in the propensity to save as a threat for its 4% inflation target this year.

The average maximum deposit rate offered by the country’s 10 biggest holders of savings fell to 8.29% as of Jan. 20, the lowest level since February 2014, according to the central bank.