Current crisis has had a negative impact on paid public services

9 august 2016

Paid public services are an important part of consumer spending. In Russia the share of services in consumer spending has always been lower than in developed nations, primarily because of a very large share of spending on groceries. These differences in personal consumption spending as well as the trends in prices and amounts of paid services that differ from those in other countries reflect a significant amount of social inequality in Russia, Analytical Center experts note in their socio-economic bulletin on the crisis in Russia titled The Market of Paid Public Services.

According to the data collected by the Federal Statistic Service, the 4.3% drop in household spending continued to be the most significant contributing factor to the decline in Russia’s GDP in Q1 2016 (-1.2% on an annualized basis). The experts say this trend stems from the continued decline in household income. The consumption of paid services changed surprisingly little even as demand for goods collapsed: in 2015 public services consumption fell by just 2% even as total retail sales in the country took a 10% dive. The amount of public services in 2015 totaled almost RUB 7.9 trillion, which translates into 17.3% of added value across the entire services sector in Russia. The experts believe that the current crisis is characterized by a decline in the share of key types of paid services (utility, transport and communication) from 65.3% in 2013 to 62.6% in 2015 and an increase in the share of medical (from 6.9% to 8%) and education (6.2% to 6.8%) services.

The specialists point out that the amount of paid services provided in Q1 2016, with the seasonal adjustments taken into account, was 2.7% less than the pre-crisis high recorded in Q3 2014. The deepest decline is seen in tourism services and that has to do with the devaluation of the ruble and restrictions on travel to the most popular cheap destinations that were traditionally popular with Russians such as Egypt and Turkey. The only group of services whose consumption has actually increased in the 2 years of the crisis is the medical services, the amount of which in Q1 2016 was 4.3% higher than in the same period of 2014.

The experts also note that during the current crisis utility bills are rising at a relatively slow pace (by an average of 7.5% in 2015 as opposed to 22% in 2009), while the prices of housing services went up by 20% in 2015, which has impacted the overall trend towards higher prices for paid services.

The crisis has had a negative impact on paid services in all regions, rather than in the less developed ones, the analysts believe. Early 2015 saw a decline in the amount of paid services in the highly developed regions but by late 2015 the sector began to show first signs of recovery there. In the developed and medium-developed regions the fall was less sharp but it is still continuing in 2016. The amount of per capita paid services by type of region depends both on how well developed the region is and on the regional differences in the price of services. But the main items that people spend money on with regards to paid services are roughly the same across all regions.

For more see the bulletin The Market of Paid Public Services

Other issues of the bulletins on the social and economic crisis are available under Publications.