2019 Brings Yet More Bad News for Russian Consumers

(Bloomberg) -- After five years of falling or stagnant incomes, Russian consumers are facing yet more bad news in 2019.

First came the Jan. 1 increase in the value-added tax by two percentage points. A few weeks later, the central bank signaled it could limit one of the key sources battered shoppers have been relying on to keep up their spending: a boom in consumer lending.

2019 Brings Yet More Bad News for Russian Consumers

Real disposable incomes contracted 1.3 percent last month, according to an estimate released by the Federal Statistics Service late Tuesday. The median of 9 economists forecast a decline of 0.9 percent. Wages, after adjusting for inflation, rose less than expected at 0.2 percent in January. Retail sales grew 1.6 percent, the weakest since July 2017.

“People are increasing their debt because incomes are not growing, they support consumption habits by taking out loans, the situation is close to overheating,” said Natalia Orlova, an analyst at Alfa-Bank in Moscow. “Trends for wages and incomes don’t look good.”

2019 Brings Yet More Bad News for Russian Consumers

Real disposable incomes crept up 0.3 percent last year after four years of declines. Retail sales rose 2.6 percent in 2018, as consumers boosted borrowing by 23 percent. Sberbank PJSC, the country’s biggest bank, reported new consumer loans hit a record last month.

Annual performanceJanuary December
Retail sales1.6%2.3%
Real wages0.2%2.9%
Real disposable income-1.3%0.1%

“Wage growth is so weak that people borrow even at rather high rates,” said Liza Ermolenko, an economist at Barclays in London. “Consumer lending growth is a negative reflection of the dire situation with incomes.”

The borrowing boom, which hasn’t slowed despite rate hikes in recent months, is an increasing source of alarm for the central bank. Governor Elvira Nabiullina last month warned bankers new restrictions on consumer lending are likely as risks from the debt grow.

What Our Economists Say:
The spike in inflation has been softer than expected, but that’s a cold comfort for consumers. Real incomes have taken a big hit, and that’s likely to weigh further on spending growth.

--Scott Johnson, economist, Bloomberg Economics.

Fast consumer lending growth may become a risk and banks should be ready for new restrictions, Bank of Russia Governor Elvira Nabiullina said in January at a meeting with bankers. Weak economic growth prospects leave little hope incomes will accelerate enough to catch up to lending, worrying regulators.

2019 Brings Yet More Bad News for Russian Consumers

Steps that squeeze lending “will slow down consumer demand to a certain degree,” said Fitch Ratings analyst Alexander Danilov.

The number of potential consumer bankruptcies rose 6 percent in 2018 from the previous year, according to Russia’s United Credit Bureau. The group includes borrowers owing more than 500,000 rubles and at least 90 days late in that category.

©2019 Bloomberg L.P.