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Consumer confidence in Russia peaked in June as the Russian economy increased spending during the war.
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The sentiment index has risen since April 2022 despite the invasion of Ukraine.
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The Russian economy grew by 4% in the second quarter of the year. Economists expect this to slow.
Russian consumers spend a lot of money and are financially healthy.
Russian consumer confidence in June reached a high not seen since the 2000s, according to a Russian government report. Levada Center, Russia’s last major independent polling agency.
Levada’s consumer confidence index has been rising steadily since April 2022, barely two months after Russia invaded Ukraine on February 24, 2022.
Despite the far-reaching sanctions, the Russian economy appears resilient, thanks to growth generated by government spending on military activities and subsidies during the war.
This growth is largely increase incomes in Russia amid a severe labor shortage, partly due to the shrinking population.
Russian consumers are on a bargain hunt
Russia’s GDP grew by 4% in the second quarter of this year compared to a year ago. It is a slowdown compared to the 5.4% growth in the first quarter, but it is still a robust growth. In contrast, the American economy grew by 2.8% in the second quarter of this year.
Russia’s booming economy has received a boost consumer spending, particularly in the areas of culture, hotels, transport services and personal services, said a Financial Times analysis of official data last month.
According to the FT, per capita consumption is in Russia increased by more than 20% from 2021 to 2023. Travel spending in particular increased by more than 90%, driven by a boost from domestic tourism.
Last year, Russian imports of cognac and sparkling wine increased by 18% and 80% respectively compared to 2019, according to an estimate by the Economist, a media channel.
Overall, “consumption is booming due to a combination of massive budget spending and labor shortages, leading to strong pressure on wages,” Bartosz Sawicki, market analyst at fintech Conotoxia, wrote in a note last month.
Economic growth could halve in second half of 2024
The good times are unlikely to last long.
Economists who by Bloomberg Expect growth to slow to around 2% in the second half of the year.
The current boom is “a final growth spurt before the Russian economy noticeably cools,” said Alex Isakov, an economist at Bloomberg Economics who tracks Russia.
The Russian Central Bank recently raised interest rates to 18% in an attempt to curb inflation as the economy faces “significant” overheating.
Such high rates mean that consumer spending could also cool.
“It is unlikely that ‘civilian’ industries are well positioned to serve as a surrogate engine for growth as more and more consumers face the reality of having to borrow at interest rates of 20% or higher,” Isakov said.
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