Russia is Recovering to its Pre-Crisis Demand Profile

7 july 2017

The Russian economy is steadily pulling out of recession, but the process is unequal throughout its regions. Nevertheless, experts of the Analytical Center have identified several typical trends outlined in the Bulletin of current trends in the Russian economy: retail retracts slower than income, the connection between regional real income behaviour and retail is getting stronger, and the share of groceries in retail is dropping.

In 2016 the people of Russia were still tryting to recover from the inflation shock of 2015. In 2016, the drop in retail sales (by 4.6 %) was still lower than the reduction of real income (by 5.6 %). Experts believe that it can be a sign of slow decay of the 'defensive' consumption behaviour, which was typical during recession. For most economical crises of the world it is typical for the population to be shocked by the impending unemployment, inflation, and general confusion at the early stages of production decline. In these conditions households cut down on spending more than they loose in income.

According to experts, real household income dropped in all regions of Russia. According to Rosstat (Federal Service of State Statistics), in 2016 the drop in real income of Russians accelerated to -5.6 % from -4.1 % in 2015 and -0.5 % in 2014 on a year-on-year basis. At the end of 2016 all regions had an actual increase of gross wages except the Republic of Ingushetia. However, the accession rates were minimal, especially in some regions.

In addition, in 2016, the actual turnover of retail trade dropped in all Russia´s regions. Only 9 regions demonstrated some growth in retail (7 regions had an increase in personal income, and 5 regions had an increase of both indicators).

In 2016 we could see the connection between the regional personal income behaviour and retail sales getting stronger: the correlation between the increments of two values increased from 0.55 in 2015 to 0.65, in all 85 regions. This points to the very rational consumer behaviour and a hard-boiled appraisal of the situation. Experts point out that the most negative impact to the correlation of increments was made by highly developed regions such as Moscow or Saint Petersburg: consumer demand shifted from the capital to the suburban area.

In crisis situation, discretionary spending undergoes recession, and the share of purchased groceries is growing. According to on-line data from Rosstat, the year of 2017 still retains the trend for slow decline of the share of groceries in retail sales: in January through May 2017 the average value was 0.6 pp lower than over the same period in 2015 (48.5 % against 49.1 %). General increase of retail sales was registered in 21 regions. Experts consider all these factors being the sign of the gradual recovery of pre-crisis demand profile.

For more information see Bulletin on Consumer Demand: Regional Inequality.

The other bulletins on current economic trends in Russia can be found in Publications.