Russia's economy has clearly reached bottom, but the received wisdom is that there will be no fast recovery from here: the best hopes for getting the country back on its feet is a consumer demand-led driver, but the latest figures paint a bleak picture.
The average Russian has been less affected by this crisis than the last one 10 years ago. However, as this is more of a corporate crisis, the effects are taking longer to work their way down to street level. But as the negative impact arrives in homes and apartments, the turnaround will also take longer.
Falling wages and low demand have depressed incomes and made consumers cautious, turning off the consumer-spending tap that has watered Russia's fast growth in recent years. Russia's Economic Development Ministry said during the budget meetings on September 23 that it expects real disposable incomes to fall 4.1% in 2009, before growing again by 0.4% in 2010, 2.8% in 2011 and 4% in 2012, the ministry said, reports Prime-Tass. The real average monthly wage is expected to fall 4.6% in 2009 and 0.6% in 2010, and to grow 2.4% in 2011 and 3.1% in 2012, the ministry said. The falling incomes may not seem like a lot, however, they are multiplied at each step away from the cash and into the real economy. The Ministry of Economic Development and Trade also predicted that there won't any growth in the retail sector over the second half of this year as a result.
The ministry has also not changed its forecast for a 6% decline in the retail sector for the whole of 2009, said Deputy Economic Development Minister Andrei Klepach, reports Prime-Tass. "Stagnation will continue until the end of the year. The conditions for substantial growth in the retail sector will appear later, as the trend of falling real personal incomes reverses," Klepach said.
These poor results feed through into the MEDT's modest prediction for 1.6% GDP growth in 2010. And this forecast is based on a projected fall of the oil price to $58 per barrel in 2010 from $70 currently, Klepach said.
Clearly, where the oil price goes from here is a key factor, but opinion is sharply divided over this question. The International Energy Agency is predicting a big shortfall in supply within two years after everyone cut their capital expenditure to the bone during the current crisis. In the near term, some analysts (and Minister of Finance Alexei Kudrin) are predicting oil prices will fall after the restocking process currently underway comes to an end. Having said all this, the Kremlin typically is very conservative on the oil price when it comes to setting the budget, because if prices are higher, the Duma gains extra funds that can be allocated to for discretionary spending.
If the oil price stays at $70 or grows to $80, then GDP may grow an extra 0.6%-1.5%, Klepach said, adding that this possibility also holds true for 2011 and 2012.
The economic results are bad, but there is cause for optimism. Walking about in Moscow, the man on the street certainly feels a lot less affected by this crisis than the last one. Most people seem to have stopped spending, but not because they have no money, they just have less than they did. Most small business people informally vox popped by bne say their sales are down by about a third. In other words people still have money, but as they are bludgeoned every day by crisis reports, they have put off spending on big-ticket items while they wait and see what happens next. For example, the MEDT lowered its forecast for the country's car output in 2012 to between 1.5m and 1.6m cars in the budget. "[That figure] is almost three times less than our forecast two or three years ago for production of 5m cars [by 2012]," Klepach said. Car sales were down by almost two-thirds year on year as of the start of September.
Put another way, the fall in consumer spending has a large psychological element to it that is not driven by inescapable economic factors like the 75% devaluation of the ruble in 1998.
If the average Russian cheers up, then he will start spending again and restart the virtuous circle of spending-profit-investment-wage increases-spending that propelled the Russian economy forward since 2003.
And here the news is good: the average Russian's attitude to the current economic situation has become less negative over the past six months, a recent poll by the Russian research organization VTSIOM found. Negative attitudes fell from 58% in March to 35% at the start of September. "The summer added optimism and the situation seems normal now to almost half of them, or 49% of those polled," Valery Fyodorov, general director of the VTSIOM, was quoted by Interfax as saying.
However, there is still some way to go until Russians actually feel good about the situation, as only 8% said they feel "positive" about what is happening in the country today.
The negative effects of the crisis are more apparent in large cities (where the highest paid workers live and most of the companies are), whereas the crisis has less of impact in towns (where the people were poor to start with). "Cities with a population of over a million and towns with a population of over 500,000 constitute a problematical zone, except Moscow and St Petersburg, which is due to a deformation and a misbalance in development levels in the period of fast economic growth," Fyodorov said.
In the meantime, the state hopes to artificially kick-start consumer spending by increasing public sector wages and especially pensions; RUB4.4 trillion was allocated to pensions in the 2010 budget on Wednesday, or 10% of GDP. "That's... an absolutely unprecedented figure. There has never been anything like it in our history," Prime Minister Vladimir Putin said in his opening remarks at the budget meeting on Wednesday.
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