Moscow remains Russia’s consumer powerhouse

Author: Media Eghbal

Date published: 20 Oct 2009

Russia has been hit badly by the global economic downturn since 2008 but the effects vary across the country. Moscow is fairing best, especially when compared to regions that depend on mining or manufacturing. Rising unemployment will, nonetheless, test the resilience of urban consumers in the second half of 2009.

Russian real annual GDP dropped by 10.9% in the second quarter of 2009, having averaged 7.1% annual growth over 2003-2008. Lower global commodity prices and exports contributed strongly to the drop;

The unemployment rate rose from 5.4% in May 2008 to 8.3% in July 2009. Unemployment is expected to rise again once seasonal rural employment ends;

In May 2009, Moscow recorded a 3.4% unemployment rate, according to a sample survey of the national statistical office. In the same month, the unemployment rate was as high as 50.1% in Ingushetia and 34.0% in Chechnya – the conflict-ridden Caucasian republics. Regional income disparities remain in Russia, which will impact consumer spending potential across the country and will be exacerbated by rising unemployment. As a result, incomes are highest in the Centralnij region, which includes Moscow.

Average monthly disposable income by region in Russia: H1 2009

Rb per capita

Source: National statistics

Implications

Low unemployment and high incomes have allowed Moscow urbanites to continue to consume:

The volume of retail sales dropped by 3.0% in the first half of 2009 in Russia. Moscow was also affected, registering a 5.6% drop. However, the worst-hit were the north-western metal-producing Vologda region (-17.3%) and the Siberian provinces of Kemerovo (-17.2%), Omsk and Tomsk (-11.2%).

More competition, which has resulted in lower prices, allows the inhabitants of Moscow to consume more:

The cost of a minimum food basket (calculated for a combination of basic food products) averaged Rb2,226 per month (US$73.3) in Russia at the end of August 2009. This was only slightly more in Moscow – Rb2,494 (US$82.1). The basket cost the most in the Far East, where food and shops are scarce, reaching Rb6,925 per month (US$228) in Chukotka, Rb3,907 (US$129) in Kamchatka and Rb3,810 (US$125) in Magadan;

In 2007, the average household expenditure was highest in the Centralnij region, thanks to its capital – Moscow. Household expenditure was also high in the Dalnevostochnij region (Far East), where high incomes are generated from oil, gas and precious metal extraction;

Consumer expenditure by region in Russia: 2007

US$ per household

Source: Euromonitor International from national statistical offices/OECD/Eurostat

Large disparities in economic development across the country are a consequence of the drastic decrease in industrial output, which followed the collapse of the Soviet Union. Urban centres managed to reorientate towards services and consumption, and the Far East towards oil refining. Investment in these areas continues despite the crisis, draining resources from the centre, Siberia and the south-west;

The gini index, which measures income inequality on a scale of 0-100 (0=perfect equality and 100=perfect inequality), equalled 41.0 in Russia in 2009 – higher than in any country of the EU. Most wealthy Russians reside in Moscow, making the average income almost triple the national average.

Prospects

Consumer spending will suffer in the short-term but the Russian market will continue to grow in the medium-term:

Russia will suffer from a strong drop in real annual GDP in 2009 (-7.5%), from 5.6% in 2008. However, growth should rebound in 2010 at 1.5%. The unemployment rate will increase from 6.3% in 2008 to 9.5% in 2009;

The government will spend up to 9.1% of GDP at US$110 billion in 2009 on stimulus plans, including diversification of the economy and the development of small and medium sized business;

The Strategy for the Socio-Economic Development of Regions of the Russian Federation focuses on promoting clusters of growth. The Far East will benefit most from the US$1,000 billion plan to improve infrastructure over 2007-2017. Regional income disparities are likely to persist into the medium-term with Moscow remaining the centre of consumer spending potential.

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