Business seminar in Vienna
“The Russian Economy after Sochi”
CENTER
FOR STRATEGIC
RESEARCH
The new Russian consumer:
Preferences, socio-economic situation,
consumption patterns
Mikhail Dmitriev
Research Director
Center for Strategic Research
ICEUR, Vienna
3 March 2014
Before the crisis:
CENTER
FOR STRATEGIC
RESEARCH
Demographic dividend and a positive
global labor supply shock
Share of the working-age population
Advanced economies
World
Emerging markets
2
Source: City Research, Mckinsey Global Institute
Drivers of pre-crisis acceleration
CENTER
FOR STRATEGIC
RESEARCH
Source: World Bank, IMF, WTO
3
Catching up with the OECD
CENTER
FOR STRATEGIC
RESEARCH
Source: WEF (2011). The Russia Global Competitiveness Report 2011, p.4
4
CENTER
FOR STRATEGIC
RESEARCH
Wages were crowding out
profits
Gross profits and mixed income
Wages (including shadow earnings and mixed income)
Source: Rosstat, Gaidar Institute
5
CENTER
FOR STRATEGIC
RESEARCH
Wages
were
crowding
out
Credit-driven
consumer
Credit-driven consumer boom
profits
boom
Credit model of consumption
Retail sales
Real disposable income
Source: Rosstat, CBR, Gaidar Institute
Source: Rosstat, Gaidar Institute
Outstanding loans to individuals,
growth yoy
6
Success stories:
Retail and hotels
CENTER
FOR STRATEGIC
RESEARCH
Share in GDP
Growth of sales 2000=100
Russia
Russia
Austria
Germany
Germany
UK
Italy
France
UK
France
USA
Japan
Canada
Source: MED
7
Success stories:
Telecommunications
CENTER
FOR STRATEGIC
RESEARCH
Cell phone subscribers per 100 persons 2009 г.
Russia
Italy
Germany
Spain
France
USA
Japan
Source: MED
8
Success stories:
Foreign tourism
CENTER
FOR STRATEGIC During last decade Russia rose from the 12th to the 7th place
RESEARCH
in the world in terms of tourist spending abroad
Number of foreign tourist trips outside CIS,
thousand
30000
25487
25000
18690
20000
15000
13147
14838
20464
30
23,8
20,9
20
15666
17,3
15
10
5000
5
0
0
2005
26,9
25
21641
10000
2004
Amount spend abroad, bln USD
2006
2007
2008
2009
2010
Source: UNWTO, Russian border authorities
8,8
2000
2005
2008
2009
2010
9
Car ownership
Number of cars per 1000 inhabitants
10
Source^ the World Bank
10
Success stories:
Financial penetration
CENTER
FOR STRATEGIC
RESEARCH
Share of banking account holders, percent
70
Number of ATM per 1000 persons
1
60
0.8
50
0.6
40
30
0.4
20
0.2
10
0
0
2007
Source: NISP, CSR
2010
2007
2010
11
The share of the middle class
CENTER
FOR STRATEGIC
RESEARCH
Source: Natalya Tikhonova
12
Middle class projections
CENTER
FOR STRATEGIC
RESEARCH
By 2020 middle class may comprise up to 50% of adult population
and up to 70% of the population of the large cities
Source: calculations by S.Misikhina
13
Income and employment growth
CENTER
FOR STRATEGIC
RESEARCH
•
During 1999-2007 real disposable incomes real disposable
incomes increased 2.4 times and real wages more than 3 times
•
Unemployment by ILO definition declined from 10.5% in 2000
to 5.1% in 2012
•
Income inequality increased only marginally: in 10 years Gini
increased – from 0.40 to 0.42)
•
Poverty headcount reduced by over 2.5 times and continued to
decline during the first phase of the global financial crisis
•
Incomes were growing rather uniformly across various income
groups, so the benefits of growth were spread broadly
14
Source: Rosstat
POVERTY ALEVIATION
CENTER
FOR STRATEGIC
RESEARCH
•
•
•
•
•
•
In 2001 0.9% of Russians were living on 1.25 $US on PPP a day.
Since 2008 this group is no longer observable in household surveys.
6% of Russians in 2006 were living on less than 2 $US on PPP a
day.
By 2009 there share declined more than 100 times – to just 0.05%.
Practically all Russian poor now belong to the low middle class by
the World Bank definition (daily incomes between 2 and 13 $US a
day).
Even if measured by the US poverty threshold (15.5 $US a day in
2010) Russian poverty headcount declined from 64.4% in 1999 to
just 30.6% in 2010
15
Source: CSR, Russian Academy of National Economy and Civil Service
Alleviation of absolute poverty
CENTER
FOR STRATEGIC
RESEARCH
Between 2001 and 2009 the share of Russians living for 2 $US a day on
PPP declined more than 100 times from 5.97% to 0.05%
1
0,9
0,8
0,7
0,6
0,5
0,4
0,3
0,2
0,1
0
0,89
0,32
0,33
0,1
2001
2002
2003
2004
0,16
0,06
2005
2006
0,02
0
0
2007
2008
2009
16
Source: CSR, Russian Academy of National Economy and Civil Service
Poverty in Russia and the USA
CENTER
FOR STRATEGIC
RESEARCH
In percent of the population
Share of Russians which were poor are by the US poverty criteria:
• In 1999 – 64.4%
• In 2010 - 30,6%
Russia (2012)
USA (2010)
Daily subsistence minimum
(USD on PPP)
10,8
15,5
Share of population below
subsistence minimum, %
12,6
15,1
17
17
CENTER
FOR STRATEGIC
RESEARCH
Covergence in
non-substantial consumption
• Developing countries’ poverty crtiteria are no longer
applicable to Russia
• Being poor in Russia no longer means absolute deprivation.
• Vast majority of Russian poor can afford a certain degree of
non-substantial consumption
• In many ways the gap between them and the middle class is
shrinking.
• In 2005-2010 the gap between 1-2nd and 5-9th income deciles
declined
• in car ownership from 2.5 times to 1.9 times
• in computer ownership – from 3.3 to 1.5 times.
18
High mobility between income
groups facilitates convergence
CENTER
FOR STRATEGIC
RESEARCH
100%
80%
60%
40%
20%
0%
14,7
20,3
32,6
32,4
2,7
2,9
27
8,4
12,6
7,5
19,2
39
21,8
9,6
31,5
29,2
37,1
1,4
50,1
2
5,1
28,3
64,6
Periphery
Non-poor,
обобщенный
периферия
ниже среднего Periphery
периферия
низший класс
Underclass
Generalized of the
non-middle
of poverty
средний
класс middle
средних
бедности
middle
class
class class
noдвижения
moves
1 group
up
нет
вверх
на 1 ступень
1 group
down
2 groups
up
вниз
на 1 ступень
вверх
на 2 ступени
2 groups
down
more than
2 чем
groups
up
19
вниз
на 2 ступени
вверх/вниз
более
на 2 ступени
Source: NISP
Nutritional convergence
CENTER
FOR STRATEGIC
RESEARCH
Nutrition gap between non-poor and
poor
2000
2010
Vegetables
2,1
3,4
1,6
2,2
2,5
1,6
2,1
1,6
1,8
1,4
2,1
1,6
Calories per day
1,8
1,3
Proteins per day
1,9
1,4
Fruits and berries
Meat and meat products
Milk and milk products
Eggs
Fish and fish products
Source: CSR, RANH I GS
20
Non-substantial consumption
Cell phones per 100 households:
CENTER
Poor
244
FOR STRATEGIC
RESEARCH
Non-poor 225
10.7
Imported cars
17.2
28.7
Home made cars
23.6
14.5
LCD and Plasma TV
26.6
35.1
No-frost refrigerators
46.5
0
10
20
Poor
Source: CSR, RANH I GS
30
Non-poor
40
50
21
The end of import- and credit-driven
consumer boom is just behind the corner
CENTER
FOR STRATEGIC
RESEARCH
• Import-driven current consumption has already been close to
saturation
• Overconsumption of imported consumer goods and services
has already contributed to ruble devaluation
• Steady imports decline as a share of GDP will reduce
incremental share of imports in consumption growth
• Income growth, which was underpinning growth momentum
until recently, has been stalled
• Consumer credit boom also nearing the end: consumer debt
servicing is already compatible with the volume of
outstanding debt growth
22
Economic openness
diminishes
CENTER
FOR STRATEGIC
RESEARCH
Bln $US
% GDP
250
30
18
2.5
16
25
200
2
14
20
12
1.5
150
10
15
8
1
100
10
6
4
50
5
0.5
2
0
0
0
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Торговый
баланс
Trade balance
Валовые
ПИИ(RHS)
(Правая ось)
Gross FDI
Платежный
баланс
Current account
* Est.
Торговый
баланс
Trade
balance
Gross
FDI
(RHS)
Валовые
ПИИ
(Правая ось)
Платежный
баланс
Current
account
23
Source: Ren-Cap NES Macro Monitor
CENTER
FOR STRATEGIC
RESEARCH
35
30
…but foreign debt
dependency increases
600
800
35
700
30
500
600
25
25
400
500
20
20
400
15
300
300
15
200
10
200
10
100
5
0
0
100
5
0
0
Gross foreign
debt, end-year,
blnгода,
$US (LHS)
Валовый
внешний
долг (конец
млрд долл США, левая шкала)
Экспорт
ВВП)
Export, (%
% GDP
Экспорт (млрд
долл
Export,
blnСША,
$USправая
(RHS) шкала)
* Est.
Foreign debt
payments, in percent
of export
Расходы
по обслуживанию
внешнего
долга (% экспорта)
24
Источник: Ren-Cap NES Macro Monitor
CENTER
FOR STRATEGIC
RESEARCH
Non-food consumption
dominated in retail sales
But now it comes to a halt
25
CENTER
FOR STRATEGIC
RESEARCH
•
•
The next big things:
non-tradables
Instead, consumption growth is likely to be focused on non-tradables:
•
housing
•
education
•
health;
•
infrastructure services (particularly in the public utilities sector).
Housing will be the most important of them all
26
Incomes were a priority issue
in early 2000-s
People’s “mandate" to Putin, 2002
33
Rise the living standards and resolve social problems
25
Improve the effectiveness of public management
16
Stimulate economic growth and employment
5
Address problems of culture, science, health and education
Address problems of housing and utilities
2
Put an end to Chechen war
2
Restore Russia's might
1
Personal wishes
1
26
No answer, irrelevant answer
Source: FOM
0
10
20
30
27
27
40
Ongoing increase in ut ilit y prices
94
Bad solut ions t o t he housing problem
81
Collapse of t he economy and agricult ure
75
Ev er- last ing t alk about ant icorrupt ion campaign wit h no real act ion t aken
70
Seeking t o ret ain t heir power in any way possible
67
Seeking t o get ev eryt hing f or t hemselv es and t heir relat iv es, clan syst em
66
Int roduct ion of Unif ied St at e Examinat ion
64
Inabilit y t o improv e t he enf orcement of law and order in t he count ry
CENTER
FOR STRATEGIC
RESEARCH
62
Poor f ollow- up of decision implement at ion
62
Act iv e only during elect ions
60
Seeking benef it s only f or t hemselv es
58
Reduced number of gov ernment - paid univ ersit y st udent s
58
Disrespect f or t heir own count ry laws
57
Transf erring t heir money abroad
56
Inef f icient social policy
53
Improper police act ions
53
Endarkenment of t he people
52
Alienat ion f rom t he people
51
No care f or t he old people
49
Robbing t he people
48
The f act t hat civ il serv ant s are bet t er of f t han ent repreneurs
48
Uncert aint y of t he f ut ure
48
Good at st ealing and paying t o remain in power
48
Beadledom
47
Enslav ing t erms of mort gage lending
46
The f act t hat t his policy is only benef icial f or t he rich
46
Demagogy, only slogans and promises
46
Longing t o enj oy a bet t er lif e t han common people, caring f or t hemselv es only
45
The f act t hat Russia is giv en a raw- export s role in t he world
43
Only good at promot ing t heir own image
42
Inef f icient economic policy
42
Creat ing lif e condit ions t hat make people t hink how t o let t heir f lat in Russia
41
Ongoing inf lat ion in t he count ry t hat eat s up pensions and wages, and child benef it s
40
Longing t o make a prof it f or t hemselv es, and f or t his purpose making deals wit h anybody
39
Ev er- last ing lies
36
Inabilit y t o build a prof essional army, weak army
35
M anagerial incompet ence – unprof essionalism
33
Irresponsibilit y, hollow promises
29
Do not know what needs t o be done
28
The f act t hat democracy in t he count ry is in danger as shown by t he lat est elect ions
22
Prowest ern v iews
Source: CSR
22
Ignorance of t he hist ory and cult ure of t heir own people
Source: CSR
Housing
became a top
priority in 2012
21
Conf used
28
15
Eart hliness
13
0
10
20
30
40
50
60
70
80
90
100
Housing convergence
CENTER
FOR STRATEGIC
RESEARCH
Poor
Share of households living in
separate dwelling, %
Non-poor
97,7
98,7
Number of rooms per household
2,58
2,44
Total area, sq m
15,7
22,1
Source: CSR, RANH I GS
29
Housing stock dynamics
• During 1980s housing stock increased by more than 30%
• During the crisis of 1990s the growth slowed down by the
factor of 2
• During successful 2000s it grew by only 14% - less than
during the previous decade
Mln sq m
3500
3000
2500
2000
1500
1000
500
0
1980 1990 1995 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
total (млн.кв.м.)
Всего
Source: Rosstat
individual ownership
ВInсобственности
граждан (млн.кв.м.)
30
30
Mortgage lending is underdeveloped
• Due to high growth of consumer lending current
consumption was increasing faster than incomes
• Share of consumer loans in total lending to individuals
neared 50%, against 20% which is typical to EU
• On the contrary, by the size of the mortgage market Russia is
lagging behind.
• Mortgages were stimulating purchases on the secondary
market but discouraged housing construction
Russia
Austria
Germany
France
Turkey
Hungary
31
Source:Trust-Bank
% of loan portfolio
31
Accessibility index of housing
with loans
120 CENTER
FOR STRATEGIC
RESEARCH
100
80
60
40
20
0
1998
1999
2000
Russia
2001
2002
Moscow
2003
2004
2005
Moscow region
2006
2007
2008
2009
Saint-Petersburg
32
Source: CSR
High housing ownership ratio
may be an obstacle
CENTER
FOR STRATEGIC
120
RESEARCH
Luxemburg
Norway
Per capita GDP, 1000 $US
100
Switzerland
80
60
40
Russia
20
0
40
50
60
70
Share of housing owners, %
80
90
100
CENTER
FOR STRATEGIC
RESEARCH
First and second baby-boom
generations will determine
consumption patterns until the middle
of this century
Age
Share of working-age population
66.000%
0-9
Second babyboom
generation
64.000%
62.000%
60.000%
10-19
20-29
30-39
40-49
58.000%
50-59
56.000%
60-69
54.000%
70-79
52.000%
80-89
50.000%
90-99
>100
2030
2028
2026
2024
2022
2020
2018
2016
2014
2012
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
48.000%
Total
34
Source: Rosstat, Center for Strategic Research
Uneven impact on unemployment
CENTER
FOR STRATEGIC
RESEARCH
• 2/3 of unemployment increase in advanced
economies was delivered by the US and
Spain
• 60% of increase in the number of
unemployed in emerging markets was
generated by China and Russia
35
Source: ILO, IMF
Global demographic turnaround
CENTER
FOR STRATEGIC
RESEARCH
• In 2013 the share of working-age population in the
world population began to decline after a long period
of fast continuous growth
• The end of demographic dividend directly affects all
major regions but South Asia and Africa
• China’s share of working-age population will decline
in the next two decades almost as fast as that of
Japan during 1990-2010
• Global labor supply is facing long-term slowdown
• Future economic growth will be overshadowed by the
36
negative labor supply shock
The end of global demographic dividend:
the share of working age population declines
CENTER
FOR STRATEGIC
RESEARCH
37
Source: City Research
Economic and labor market
implications
CENTER
FOR STRATEGIC
RESEARCH
• Labor force decline will increase global returns on labor versus returns on
capital
•
Average long-term wage growth may exceed growth of GDP per capita
•
Fast decline of labor supply will drive up China’s labor costs faster than ever,
limiting export-led manufacturing growth and reducing trade surplus
•
Growing domestic consumption will suppress the investment rate and induce
faster growth of services for domestic market
•
Working age population decline creates a powerful drag on productivity and
economic growth
•
Shrinking labor force and growing labor costs in China and other emerging
markets will ease pressure on employment in manufacturing and other
tradables for the advanced economies
•
Domestic labor force decline and easing pressure from BRIC will accelerate
wage growth in advanced economies
•
38
Demographic turnaround will contain the rebound of pre-crisis imbalances
One of economic implications:
global drag on productivity
growth
CENTER
FOR STRATEGIC
RESEARCH
•
1% decline in the share of working-age
population was associated with
productivity growth decline of 1.752.75%
•
China’s demographic supply shock
implies that its average GDP growth for
the next 20 years will stay below 6%
39
Source: City Research
Change in real GDP growth rates:
2012-13 (percentage point)
CENTER
FOR STRATEGIC
RESEARCH
Russia:
double labor supply shock
Double labor supply shock:
• Very fast decline of the working
age population
• Numerous
and
well-educated
second baby-boomer generation
entering labor market
Labor market outcomes:
•
Slow economic growth and productivity growth
•
Declining labor force (- 630,000 in 1Q-3Q 2013)
•
Net job destruction (- 780,000 in 1Q-3Q 2013)
•
High labor participation rate
•
Very low unemployment (5.3-5.6%) close to 20-year minimum
•
Very high youth unemployment (15.8 % in mid 2012 – 4 times higher than
in the 30-49 years old age group)
•
Wages growth (5.6% 1H 2013) - much faster than GDP (below 1.5%401H
2013) – at the expense of declining profits
Medium-term forecast
(before the Ukranian crisis)
CENTER
FOR STRATEGIC
RESEARCH
2010
2011
2012
2013
2014
2015
2016
GDP
Final consumption
Household consumption
Government consumption
Gross investments
Export
Import
41
Source: Gaidar Institute
CENTER
FOR STRATEGIC
RESEARCH
Thank you for attention!
42