Russian consumers are big spenders and feel confident about their financial situation.
The Levada consumer confidence index has been rising steadily since April 2022, just two months after Russia’s invasion of Ukraine on February 24, 2022.
Despite widespread sanctions, the Russian economy appears resilient, driven by growth generated by state spending on wartime military activities and subsidies.
This growth is significantly boosting incomes in Russia, which is suffering from a serious labor shortage due in part to a declining population.
Russian consumers are shopping frenzy
Russia’s GDP grew 4% in the second quarter of this year compared to the same period in 2018, slowing from 5.4% growth in the first quarter but still strong. In contrast, the US economy grew 2.8% in the second quarter of this year.
Russia’s booming economy has boosted consumer spending, particularly on culture, hotels, transport services and personal services, according to an analysis of official data published by the Financial Times last month.
According to the FT, per capita consumption in Russia is set to grow by more than 20% from 2021 to 2023. In particular, spending on travel has surged by more than 90% due to an increase in domestic tourism.
The Economist estimates that Russian imports of cognac and sparkling wine rose 18% and 80%, respectively, last year compared to 2019.
Overall, “huge budget spending combined with labour shortages is putting strong pressure on wages and fuelling consumption,” Bartosz Sawicki, a market analyst at fintech firm Konotokia, wrote in a note last month.
Economic growth could halve by the second half of 2024
The good times won’t last long.
Economists surveyed by Bloomberg expect growth to slow to about 2% in the second half of the year.
Alex Isakov, Russia economist at Bloomberg Economics, said the current boom is “the last period of growth before the Russian economy starts to cool significantly.”
Russia’s central bank recently raised interest rates to 18 percent in an attempt to curb inflation, citing “significant” overheating in the economy.
These high interest rates also mean consumer spending could weaken.
“With more consumers facing the reality of having to borrow at interest rates of 20 percent or more, private industry will not be in a position to act as an alternative engine of growth,” Isakov said.
