SberIndex: Russia’s economy shifts from recovery to full-fledged growth
In May, consumer demand in Russia steadily returned to growth levels at an annual rate of 5.7%. Consumer spending patterns approached pre-crisis levels. Even the service sector, which has had a slow post-pandemic recovery, is now turning a steady profit. SberIndex analysts believe that the current increase in expenses and prices is linked to rising salaries, the shift of traditionally “overseas” expenses to the domestic market, and the unprecedented high levels of savings amassed by the population in 2020.
According to SberIndex, consumer spending in Russia grew in April-May 2021 at an annualized rate of 5.7%. Moreover, trends indicate continued growth at an accelerated pace, reaching 7.2% y-o-y during the last week of May (May 24–30, 2021).
May 2021 saw consumer demand steadily return to growth levels even in real terms.
Consumer spending patterns are closer to pre-crisis levels. By the end of May, the long-lagging service sector was steadily turning a profit (+5.0%) and had drawn close to food retail in terms of nominal growth rate (+6.0%).
Sber identifies three factors that could be behind the current increase in expenses and prices: rising salaries, the shift to the domestic market of expenses that traditionally occur abroad, and the unprecedented high levels of savings amassed by the population in 2020.
In April, gross payroll made an almost complete return to its pre-crisis figures: the deviation from the levels that could have been expected were it not for the coronacrisis amounted to a mere ‒0.2%.
Payroll in the public sector (education, healthcare) is on average growing more slowly than in commercial sectors. The most rapid payroll growth is registered in the information and communications sectors (+16.5% for Jan-Apr 2021 y-o-y), construction (+14.4%), and professional activity (+13.5%). Salary increases in these sectors are linked to the rise in demand for these goods and services post-pandemic.
The salaries of higher-income groups are growing more rapidly: the top wealth quintile saw a rise of 6.1% in Q1 2021, while the bottom 20% experienced a rise of only 5.3%. This could, in part, be related to the faster increase in salaries in the commercial sector compared to the budget sector, which depends on indexation.
The significant decrease in Russian spending abroad due to COVID-19-related restrictions facilitated the increase in domestic consumption and prices. In 2020, overseas expenses dropped by over 75%, from USD 36 bn to USD 9 bn. We expect expense levels to remain below pre-crisis figures in 2021. A portion of the funds not spent abroad are redirected to domestic consumption, which is a pro-inflation factor.
The considerable amount of savings amassed in 2020 is also a pro-inflation factor. Last year, Russians saved a total of RUB 5.3 tn. In 2021, due to the pent-up demand effect, a portion of these funds is being channeled to expenses. This could explain the faster growth of non-food expenses compared to other categories in April-May.
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