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Consumers Adjust to the New Reality

Photo: smartmoney.today

According to the July polls of the Russian Public Opinion Research Center, consumers in Russia are not experiencing as much uncertainty as they did in the beginning of this year. In January, 29% hesitated to answer whether it is a good time to make large purchases, in comparison to 15% last December. Only by mid summer, the number of undecided reached the peak values of last year.

A significant share of them have become more optimistic by July. As a result, the consumer confidence index generated by the Russian Public Opinion Research Center rose to 45. It is the same result as in last December, which preceded the rise of consumer uncertainty. During the entire period following the devaluation crisis at the end of 2014, the best result was recorded only in August of last year, when index reached 47.

Middle Class Has Thinned

August data from the Russian Public Opinion Research Center on consumer confidence levels have not been published yet, but the Federal Service of Statistics has already released information confirming that retail trade turnover in August has increased by 3.6% in comparison to July. It provides a reason for an optimistic forecast of consumer confidence index.

Sberbank CIB also confirms that the situation in the Russian consumer market is stabilizing. According to the company’s executive director and senior analyst, Mikhail Krasnoperov, the size of middle class in Russia has dropped from 61% to 48% over the past four years. “It tells us that 16 million people have moved from middle class to the level below. The good news is that this process has stopped and will not continue,” Mikhail Krasnoperov shared his forecast with MarketMedia. Based on this information, the July decline of consumer uncertainty can be interpreted as a sign that consumers who migrated from middle class are adjusting to the new reality and are getting used to the consumer niche of a lower level.

Credit Will Not Salvage

Despite the July growth of the Consumer Confidence Index, it is far from the values we saw at the end of 2013 and the beginning of 2014. Even the positive dynamics of lowering interest rates could not change the mind of consumers, who are hesitating to make large purchases. According to the Bank of Russia, in early August of this year the average annual interest rate on mortgages was 9.57%. In June 2014, before the crisis, it was 12.2%, and in the summer of 2010 - 13.49% annually. The situation with auto loans is similar. Currently, annual interest rate is 13.36%, as opposed to 15.8% in the summer of 2014.

Of course, lower interest rates provide incentives for consumers. However, in recent years, income has dropped so significantly and it lasted for so long that consumers hesitate to part with their pessimistic outlook. The recent Bank of Russia’s annual rate increase to 7.5% did not help it either. 

None of the experts predict significant economic growth in the near future. At the same time, according to current statistical data, it is not decreasing either. This market stagnation is experienced by both, the market participants and the majority of consumers. In its recent study, the Gallup Institute has reflected this attitude among Russians, after assessing expectations for 2018 in different countries. According to this research, Russia holds the first place among the countries who believe that the current year will be no different from the previous year.

Dmitry Manylov

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