Weakening consumer demand creates a risk of deflation, which would depress the Russian economy, says an economic analyst with Bloomberg’s Anna Andrianova
This is the case, when I come up with “John’s day’s” most Russians.
The longest in two decades in Russia the recession has destroyed consumer demand. The price growth slowed for the seventh month — this was enough for Bank of America warned that the country dramatically increases the risk of deflation.
According to the recently published Sberbank CIB “Consumer index Ivanov” (a common Russian name, indicates the typical Russian buyer), 76% of respondents consider themselves to be sensitive to the price level, and 60% are trying “to save on matches”, using promotions and special offers.
“Retailers are price wars, but not like before,’ said Alexander Malis, the head of Euroset, the largest seller in the Russian retail market of mobile phones.
It will last not months but years, while the Russian economy will not recover”. For a country that for decades tried to rein in rising prices, this approach changes the shape of the consumer landscape affected by the oil price shocks and international sanctions.
It allows you to understand what will remain on the shelves after all of Putin’s unprecedented in times of weaker domestic demand. Unemployment and the accumulation of the Question is when demand will recover and whether it will happen, considering that its contribution to the erosion of the economy start to introduce factors such as the growth of youth unemployment.
With the slowdown in price growth, according to Morgan Stanley, the Russians can solve that it is better to be saving than spending money.
The accumulation of last year has grown to 14.1% of net income of Russians — the highest percentage since 2010 and 5.4% higher than in 2008, according to the Moscow Federal service of state statistics.
While millions of people in the country slides into poverty, and the level of earnings is not reversed, the share of food in retail sales has exceeded in February half; this was not more than eight years.
Rising prices, poisoned the lives of many Russians since the early 1990-ies, when inflation exceeded 2500% per year, now almost not seen as a problem. Only 5% of respondents said that the biggest problem that the country faced in March.
In the list of problems, according to a study by VTsIOM, the price increase was on the ninth position, following health and foreign policy. Fatigue Consumer who more than a decade has been in Russia the engine of growth, is now deeply ill, and the economy for the second year in recession.
Despite the fact that the Central Bank still expects inflation in the middle of the year after an episode of weakness of the ruble in the beginning, the ability of the consumer to take a punch, probably, already so weakened that it is possible to appear from the forecast that determines monetary policy. Data published this week show that consumer pessimism becomes an independently acting force.
Last year there were all conditions for recovery of demand — the slowest inflation in almost two years and is the largest among all world currencies growth in ruble strengthening against the dollar by more than 12%.
Consumer pessimism
But it didn’t help. Retail sales fell more than economists predicted, the unemployment rate and real earnings turned out worse than the median forecast of experts, surveyed by Bloomberg.
According to Eldar Vakhitov of BNP Paribas SA, this means that there was a “structural change”. Factors from high cost loans to the repayment of the large debt accumulated in previous years, to make predictions for households pessimistic, according to the London economist.
“The recovery of consumption is likely to be delayed until 2017”, — he said. The demographic factor is also unfavorable. The working-age population will continue to decrease after you have already decreased by 5 million compared with the peak of 2006, reducing potential economic growth in 2016-2017 to zero, according to economists of Bank of America Vladimir Osakovsky and Gabriel FOA.
While the overall number of jobs in recent years, remains at the same level, the proportion of employed among the working-age population in 2015, according to Bank of America, exceeded 69% — the highest level for the entire post-Soviet period. “The steady decline of the working-age population in Russia is an important factor behind the current long-term deflationary trend, said economists.
— The shortage of labour force and employment growth are also an integral part of the overall weakness of consumer demand, which we expect will continue in 2016-2017.
We think that at least in the next few years will be to contain inflationary pressures”. “Spike” given the recent data, the indicator of deflation risk, Bank of America showed a “spike” is a rapid increase from minimum to high. This is still just a view from outside.
The Central Bank of Russia does not agree — to a certain point. First Deputy Chairman of the Central Bank Ksenia Yudaeva sees no risk of deflation in the short to medium term. However, if you look at Russia’s neighbors in the region, you can see that the countries that have recently struggled with inflation, can be subject to falling prices.
Romania, where in the early 1990s, inflation was about 300%, for ten months going through deflation. The annual inflation rate in Poland from July 2014 below zero and the Central Bank of this country predicts that prices will continue to decline; this will be the longest period of deflation since the mid-1950s.
The budget and oil, the Attention of Russian politicians have taken a more direct risks associated with the budget, the ruble and the volatility of oil prices. It’s no surprise after the Central Bank in 2015 for the fourth time missed with a forecast growth of prices in 2015 and recognized that the forecast for 2017 also can not hit the target. Its key rate since July remains unchanged at 11%. Propped up the ruble also prevents the growth of prices, because the imports become cheaper. The Russian currency this year has already risen by 11% last year after falling by 20%.
General Director of LLC “Nestle Russia” Bernard Meunier. assuming that by the end of 2016, the ruble will remain at 65 per dollar, predicts that annual inflation will be less than 6% in the third quarter, and by the end of the year will decrease to 4.5%.
Now, according to the Central Bank, it is kept at the level of 7.2%. Depressed mood of consumers may restrain any inflationary risks. Companies such as Nestle SA, teetering on a thin line, fighting for customers.
“We try to keep all the price increase of our products to the consumer, to avoid further decline in sales volumes, — said General Director of “Nestle Russia” Maurizio Patarnello. — We try to act rationally and take part on inflation, capping it at his own expense”.
