Fitch: Russia Recovery Weak

The Russian economy will struggle to return to pre-crisis growth levels in the next few years because consumer demand will stay weak as people save more and spend less, Fitch Ratings said.

Consumer demand is the largest driver of Russian growth, while proceeds from energy exports, another important contributor, are seen stuck near multi-year lows as a global glut restrains oil prices, Reuters reported.

Presenting Fitch’s forecasts for 2016-18, Associate Director for Consumer and Healthcare Tatiana Bobrovskaya said Russian consumers would stay focused on keeping costs down.

Some recovery in consumer demand was possible in the low and middle price segments of the market, she said, but stronger demand in higher price segments might only be possible from 2018.

“The year of 2017 will still be very difficult for retailers and producers,” Bobrovskaya said, adding that consumer confidence in the third quarter of 2016 remained at “crisis levels”.

The economy sank into recession in 2014 after Moscow annexed Crimea from Ukraine and the West imposed economic sanctions. Battered by a rapidly depreciating ruble and lower real disposable incomes, retail sales started falling in annual terms from early 2015 and were still down 5.1% year-on-year in August this year.

In a presentation on Russia’s retail sector in 2017, Fitch said consumer-facing businesses would also be pressured by people’s tendency to save more and spend less. Savings in Russia still provide attractive rates of return, with retail banks offering deposit rates of up to 10%.

Such rates, which have been supported by the Russian central bank only cutting its key rate twice this year, are above inflation, which is on track to hit a post-Soviet low in annual terms of 5 to 6% for 2016.

Spending activity ran out of steam as the ruble lost around half of its value since 2014.