According to the Central Bank's April Regional Economy Survey, consumer demand in Russia is recovering slowly, and few businesses are expected to recover from the 2022 slump. Last year, sales fell in almost every product category. The exceptions were a variety of non-food consumer goods (which were ordered more actively on marketplaces) and motor fuel.
Food products experienced the smallest decline: 0.8% in physical terms. The sanctions had little effect on the food sector, and an excellent harvest kept prices down. Further, when people see a marked drop in their incomes, food is the last thing they save on. The main product categories (meat, eggs, pasta, and vegetables) showed some growth in January-February 2023. At the same time, bread sales fell 11.6%.
In contrast, high-end consumption — the purchase of expensive consumer durables — has been the worst affected. Sales of car and spare parts, for example, have fallen by 41% in the number of units sold compared to 2021. The reorientation of dealers towards the Chinese automotive industry and the parallel import of Western-made vehicles did not help to restore sales. At the same time, as the Central Bank experts note, sales of used cars, including those recently imported from Europe, are on the rise.
Following the departure of many well-known brands from the Russian market, sales of household appliances, electronics, clothing, and footwear have also demonstrated no sign of recovery. According to the survey's authors, consumers are wary of the new brands that are currently attempting to take the market by storm, instead preferring to repair their old items. The same logic appears to apply to automobiles. Moreover, in January-February, sales of washing machines were 40.5% lower than in the same period in 2022, mobile phone sales were 16% lower, and clothing and footwear sales had dropped by 10.6%. However, some goods fared better. Television sales, for example, have increased by 9.6% year on year.
The dynamics are not consistent across Russia’s regions. The greatest drop in retail sales occurred in Moscow and St. Petersburg, where demand for products from Western companies was highest before the war. Meanwhile, in the Far East, automotive retail sales increased rather than decreased. This can be explained by the fact that used cars from neighbouring Asian countries have conventionally accounted for most car sales in this region. In the southern regions there was an overall sales increase at the end of the year, driven partly by increased tourist traffic.
The profile of the current crisis, as in other fields, differs from those triggered by declining external revenues and accompanying macroeconomic shocks (devaluation), which Russian economic agents are familiar with, having already experienced these in 1998, 2009, and 2015 (We previously discussed sanctions-induced desynchronisation in greater depth here). In this case, however, demand dynamics have lagged behind wage growth. In 2022, real wages increased in 23 regions, while consumption increased in only four. Nonetheless, real wages increased by only 1%. According to the InFOM survey commissioned by the Central Bank, the share of respondents who intended to save their spare cash rather than spend it on something expensive was at an all-time high in March. People also demonstrated a preference towards saving in cash or short-term deposits, which indicates a lack of confidence in the future.A recent Romir survey suggests that Russians are living in the present, struggling with financial and consumer planning, and are uncertain about the future. In a joint survey with Gallup International, Romir asked respondents in 56 countries whether they would prefer to receive an additional lump-sum payment equal to their monthly income immediately or to double their monthly income in a year. 32% of Russians said they would prefer an immediate one-time payment, while 48% were unable to respond. Only 20% chose to have their monthly income doubled in a year’s time. This does not bode well for trade and services, especially when large sums of money are at stake. Nonetheless, the authors of the survey suggest that representatives from these industries are optimistic. They believe that as incomes rise (real wages are expected to rise by a record 5% in 2023) and supply expands, consumers will begin to spend more.