Russians and the city: consumer led growth

June 11, 2013

Speculation is growing that new central bank governor Elvira Nabiullina will cut rates to help stimulate faltering growth soon after takes up her job later this month, but the resilience of the Russian consumer may be another important factor in giving the economy a lift.

Retail sales figures have been lower than expected for the first quarter of 2013, leading economists to revise downwards their prediction for this driver of growth, though performance in the construction and cement sectors is improving, according to Morgan Stanley research:

Overall, we estimate that household consumption growth has accounted for 65 percent of Russian growth over the last decade.

The source of this growth will come from incrementally rising incomes. Nominal wage growth has been in double digits since 2010,  according to the research, though once adjusted for inflation it fell last year by 4.2 percent versus a rise of 11.2 percent in April the previous year.

A tight labour market  is putting upward pressure on wages, though again this has been dampened due to high inflation (7.2 percent in April).

Oliver Wyman and Efma  found in a recent survey focusing on credit trends following the 2007-2008 economic crisis that annual credit growth volume in Europe is forecast to rise 1.4 percent over the next 5 years, less than the average nominal growth of around 2 percent in GDP terms expected for the period.

According to Matthew Sebag-Montefiore, co-author of the report:

In Russia we…see a shift from cards-based lending to loan-based lending on the consumer side, larger tickets and longer maturities and that supports growth in the overall lending

 

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