Navigating a wartime consumer economy is proving expensive and time consuming for Larisa Rudenko.
(Bloomberg) — Navigating a wartime consumer economy is proving expensive and time consuming for Larisa Rudenko.
The 45-year-old homemaker from Voronezh, in central Russia, says buying clothes for her teenage daughter has become all but impossible after the disappearance of cheaper western brands while the Russian knockoffs are too pricey and outdated. With the family’s budget stretched, the choices are no easier when it comes to food or durables.
“You simply don’t know where to go,” she said. “Maybe with time, more shops will open and we’ll find replacements.”
For all of President Vladimir Putin’s upbeat talk of expecting “some growth” across the board this year, retail sales remain in a contraction that’s already more drawn out than its declines during the global pandemic.
The downturn represents what Bloomberg Economics says is a “permanent drop” in living standards, similar to the impoverishment and a record stretch of shrinking retail sales in the years after the 2014 annexation of Crimea. The consumer sector accounts for about half the economy.
It’s a stark contrast to the resilience of an economy that endured a year of sanctions with a much shallower recession that first expected.
Though panic shopping supported consumption in the weeks following the invasion a year ago, it’s since flat-lined deep below zero and stayed there to start this year, with household spending projected to drop every quarter in 2023, according to forecasts compiled by Bloomberg.
Data on Wednesday showed retail sales in January shrank for a 10th straight month, a stretch longer than their crash at the height of the pandemic in 2020. Still, their annual drop of 6.6% was much smaller than forecast by economists.
Real wages were close to unchanged in December but declined 1% for the year as a whole.
“Retail is one of the sectors of the economy that was hurt the most last year,” said Olga Belenkaya, an economist at Finam. Savings in banks at home and abroad surged by 5.7 trillion rubles ($76 billion) last year, she said, comparable to the record during the pandemic and almost double the total in 2021.
After signs of consumer revival in January, high-frequency estimates of nominal spending showed a deceleration and then a drop in recent weeks. Belenkaya reckons retail trade last year had its sharpest contraction since 2015.
Wallets Do the Talking
The health of the consumer will become an important barometer of economic risks in Russia as the war grinds on.
The extent of scarring in retail may prove deeper than in other parts of the economy that have been able to rebuild supply chains and source products from alternative markets. The crisis has already threatened the existence of many shopping malls, with a trade association recently telling the Izvestia newspaper that every second mall is at risk of bankruptcy.
What Bloomberg Economics Says…
“Living standards for Russian consumers peaked in 2014 and never recovered. Last year’s sanctions reduced turnover in retail trade by 10.5%, setting it back by more than a decade. The outlook for the consumer is more of the same as the government is expected to gradually move back to restricting imports in order to support local industry.”
—Alexander Isakov, Russia economist.
Although the government has pumped massive stimulus into the economy and unemployment is at a record low, households have turned increasingly frugal.
Cash loans to individuals barely grew last year even in nominal terms, with Russians opting instead to pay down existing debt.
The emphasis on austerity has allowed some companies to thrive. One of Russia’s biggest retailers, X5 Retail Group, said its hard discounter Chizhik saw last year’s net sales surge 12-fold on an annual basis while increasing the number of stores by seven times, with more openings planned for 2023.
The smaller retail market is in part a reflection of a narrower range of goods available after the exodus of many western brands following the invasion. And with hundreds of thousands fleeing Russia to avoid the mobilization, retailer X5 also said last month the outflows were one reason why it saw a drop in demand for food.
The changes in consumer preferences also provide a glimpse into the hardship facing many regular people. A survey by a state pollster in late 2022 found that more than a third of Russians have begun to save on food.
Rudenko’s experience is a case in point. Her family decided against purchasing a second car and bought a Chinese-made vacuum cleaner for what European models used to cost before war.
Her spending on basic staples such as eggs, milk and bread is the same as before but the family is trying to save on pricier items like coffee. “So we either make without expensive products or look for cheaper alternatives,” Rudenko said.
(Updates with latest data starting in eighth paragraph.)
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